Citigroup Initiates Buy Rating on Thermo Fisher (TMO)

Citigroup is out with a research report this morning, where it initiates a Buy rating on shares of Thermo Fisher Scientific Inc. TMO; it has a $63.00 price target on the stock. The Citigroup analysts said, “Formed in 2006 from the merger between Thermo Electron and Fisher Scientific, TMO is the leading manufacturer of lab instruments and supplies for the estimated $75B life science research, healthcare and applied markets. We expect future revenue growth in the mid-single digit range and adjusted EPS growth in the low- to mid-teens (in-line with guidance) and believe that the company has a competitive advantage, due to its strong brand, purchasing power, operating leverage and global footprint, and will emerge in a stronger position to benefit from the recovery than its competitors.” Their positive investment thesis is based on five factors: (1) “Strong, stable cash flow generation from a diversified, comprehensive product portfolio (2) Compelling M&A growth strategy in highly fragmented industry with ample room for consolidation (3) Potential for further significant cost reductions post-merger (4) Benefit from customer focus on cost-effective procurement (5) Large market opportunity in under-penetrated Asian region.” They closed by saying, “Our $63 target is based on a 16x P/E on our 2011E EPS of $3.92. We believe TMO EPS growth will continue to outpace the S&P through 2013, hence a sustainable 1.2x relative P/E that implies a 16x multiple. Also, with TMO’s LT EPS growth of 12% slightly below its comp group (and comps at 18x P/E), we believe a P/E slightly below the group is appropriate for TMO.”