2020 was the year of the healthcare and pharmaceutical sector when it came to stock industry investment. Global Brokerage and study firm Credit Suisse, in a current report, highlighted that the price tag-efficiency of healthcare subsectors such as clinical laboratories, managed care, healthcare devices, and contract study organizations outperformed the S&P 500 index. The brokerage firm stated that it selectively views additional upside possible for stocks that have demonstrated potential to boost industry positioning all through the pandemic with strategic innovation and capacity investments. With this, Credit Suisse has upgraded Thermo Fisher to an ‘outperform’ rating.
Upgrade to ‘Outperform’
The report stated that Thermo Fisher (TMO) is hugely levered to healthier sector fundamentals, as properly as drivers in increasing biopharma demand, enhanced exposure to more rapidly-increasing services markets, innovation, geographic expansion, and enhancing operational efficiency. Credit Suisse had initiated the coverage of the stock much less than a year ago with a ‘Neutral’ rating. “Since that time, the market has evolved meaningfully with the COVID pandemic, driving some unexpected catalysts and opportunities for the Life Science group broadly speaking. TMO has admittedly far exceeded expectations in the current environment, with the company recently increasing its 4Q guide meaningfully, now calling for +40% organic growth,” they added.
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Although analysts at Credit Suisse see dangers to the stock as covid-19 testing reduces with the distribution of the vaccine, the report stated there are other possible offsets. These incorporate important 2020 PCR instrument placements, COVID vaccine/therapy improvement and commercialization possibilities along with expanded capacity enabled by COVID-driven investments. “More specifically, as it relates to COVID vaccines and therapies, TMO is working on 250+ projects, representing an opportunity now estimated to be north of its prior expectation of $1 billion in revenue,” Credit Suisse stated.
Valuation under peers
In terms of valuation, the stock trades at 18.6x 2022 EV/EBITDA, under the Life Science Tools peer typical (20.9x), albeit nevertheless above its historical 5-year typical of 17.0x. However, the brokerage firm believes that valuations do not adequately reflect its larger organic income development run-price and strengthening margin profile, specifically as it enhances its industry-major positioning with strategic investments across the biopharma arena.
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Target price tag
The revised target price tag for Thermo Fisher has been set at $556 per share. Currently, the stock trades at $503 apiece. In its Blue Sky situation, Credit Suisse does see the possible for the stock zooming as higher as $667 per share. On the other hand, if points go south and R&D slows down along with a stringent regulatory atmosphere, the stock could tumble to $445.