Recently, Thermo Fisher Scientific (TMO), one of the leading scientific instruments makers, announced a $750 million share repurchase program, which will remain effective until September 8, 2011. Earlier, the company had announced another $750 million share buyback program, of which $188 million of authorization still remains. The company’s strong cash position enables it to carry out share buyback programs.
Thermo Fisher exited the second quarter of 2010 with $1.31 billion in cash and cash equivalents, down from $1.56 billion at the end of December 2009, as a result of acquisition, share repurchase and payment of debt, offset partially by strong free cash flows. For 2010 until the second quarter, free cash flows from continuing operations were $520 million. Thermo Fisher’s strong cash position should assist in making suitable acquisitions, reducing the debt burden or repurchasing shares.
Thermo Fisher has grown through several acquisitions, the latest being Fermentas International, a manufacturer and global distributor of enzymes, reagents and kits for molecular and cellular biology research. The acquisition, completed in July, will enable the company to expand its offering in the field of genomics research and polymerase chain reaction based testing. Moreover, the company has developed new screening methods to help laboratories analyze the effects of oil contamination in marine life from the Gulf of Mexico.
During the latest quarter, Thermo Fisher’s two segments – Analytical Technologies and Laboratory Products and Services - recorded revenues of $1.10 billion (10% annualized growth) and $1.68 billion (5%), respectively.
Our Recommendation
After a drop in revenues during 2009, Thermo Fisher is back on a growth trajectory. A gradual improvement in the economic scenario along with its focus on potential markets and other strategies should drive its top line in the forthcoming period. However, we remain concerned about the company’s exposure to currency movement. Moreover, any kind of economic turbulence could negatively impact the company’s sales based on financial constraints and customers deferring their buying decisions.
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