Offshore

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⁠Dimitry Nakhla | Babylon Capital®
A quality valuation analysis on $TMO 🧘🏽‍♂️

•NTM P/E Ratio: 17.84x
•10-Year Mean: 22.02x

•NTM FCF Yield: 4.97%
•10-Year Mean: 4.16%

As you can see, $TMO appears to be trading below fair value

Going forward, investors can receive ~23% MORE in earnings per share & ~19% MORE in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $TMO is a great business

BALANCE SHEET🆗
•Cash & Short-Term Inv: $5.95B
•Long-Term Debt: $31.24B

$TMO has a good balance sheet (acquisitions a big growth driver), a A- S&P Credit Rating & 6x FFO Interest Coverage

RETURN ON CAPITAL✅*
•2019: 8.3%
•2020: 13.4%
•2021: 12.8%
•2022: 10.3%
•2023: 8.7%
•2024: 9.2%

*lower ROIC due to acquisition strategy

RETURN ON EQUITY✅
•2019: 12.9%
•2020: 19.9%
•2021: 20.5%
•2022: 16.4%
•2023: 13.1%
•2024: 13.1%

$TMO has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2014: $16.89B
•2024: $42.88B
•CAGR: 9.76%

FREE CASH FLOW✅
•2014: $2.19B
•2024: $7.27B
•CAGR: 12.74%

NORMALIZED EPS✅
•2014: $6.96
•2024: $21.86
•CAGR: 12.12%

SHARE BUYBACKS🆗
•2019 Shares Outstanding: 403.00M
•LTM Shares Outstanding: 381.00M

MARGINS✅
•LTM Gross Margins: 41.4%
•LTM Operating Margins: 18.3%
•LTM Net Income Margins: 15.2%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~23% MORE in EPS & ~19% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $TMO has to grow earnings at an 8.92% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be slightly less than the (8.92%) required growth rate:

2025E: $22.47 (2.8% YoY) *FY Dec
2026E: $24.84 (10.6% YoY)
2027E: $27.73 (11.6% YoY)

$TMO has an excellent track record of meeting analyst estimates ~2 years out, let’s assume $TMO ends 2027 with $27.73 in EPS & see its CAGR potential assuming different multiples

24x P/E: $665.52💵 … ~20.0% CAGR

23x P/E: $637.79💵 … ~18.1% CAGR

22x P/E: $610.06💵 … ~16.2% CAGR

21x P/E: $582.33💵 … ~14.1% CAGR

20x P/E: $554.60💵 … ~12.1% CAGR

As you can see, $TMO appears to have attractive return potential IF we assume >20x earnings and strong return potential at 22x

Despite $TMO’s earnings dip from 2020-2023 due to pandemic-driven booms followed by biopharma funding & tariff fears, its proven track record of steady growth, among other things, signals a return to normalcy once these overhangs clear

$TMO is an excellent business with a wide moat & will benefit from future ongoing sector demand (AI tailwinds in scientific research), especially their next-gen sequencing machines & chromatography machines

Today at $414💵, $TMO is a strong consideration for investment with a large margin of safety
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𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞�[...]

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