Integration of advanced technologies and the surging need for devices to analyze the early development and progression of critical diseases have allowed the diagnostics and research industry to grow significantly over the years. Rising investments in the industry have helped companies improve their product portfolios to provide an enhanced experience to medical practitioners and patients. The clinical diagnostics market is expected to grow at a 6.1% CAGR to reach $99.05 billion by 2027. So, both TMO and A should benefit.
Thermo Fisher Scientific Inc. (TMO) and Agilent Technologies, Inc. (A) are two prominent healthcare companies engaged in the diagnostics and research industry. TMO offers life sciences solutions, analytical instruments, specialty diagnostics, and laboratory products and services. It serves pharmaceutical and biotech companies, hospitals and clinical diagnostic labs, universities, research institutions, and government agencies. A provides core bio-analytical and electronic measurement solutions to the life diagnostics and applied chemical markets. It offers electronic and bio-analytical measurement, semiconductor, and board testing.
TMO is a winner with 3.6% gains over the past nine months versus A’s 21.9% loss. But which of these stocks is a better pick now? Let’s find out.
On April 20, 2022, TMO opened its new single-use technology manufacturing site in Ogden, Utah, creating additional capacity to produce highly customizable bioprocess container (BPC) systems needed to develop life-saving biologics and vaccines and cell and gene therapies, including for COVID-19. The Ogden facility further strengthens its global manufacturing network and meets the increasing demand for single-use consumables and critical raw materials.
On April 5, 2022, A expanded CE-IVD marking in the European Union for its PD-L1 IHC 28-8 pharmDx to identify esophageal squamous cell carcinoma patients for treatment with biopharmaceutical company Bristol Myers Squibb’s (BMY) PD-1-targeted immunotherapeutic OPDIVO, in combination with fluoropyrimidine and platinum-based chemotherapy or OPDIVO in combination with YERVOY. As esophageal cancer is the seventh most common cancer, these combined treatments should help the companies reach wide market reach in the coming months.
Recent Financial Results
TMO’s revenues for its fiscal 2022 first quarter ended April 2, 2022, increased 19.3% year-over-year to $11.82 billion. The company’s adjusted operating income came in at $3.45 billion, representing a 1.7% decline from the year-ago period. TMO’s adjusted net income came in at $2.86 billion, indicating a marginal year-over-year decline. Its adjusted EPS decreased 1% year-over-year to $7.25. The company had $2.75 billion in cash and cash equivalents as of April 2, 2022.
For its fiscal 2022 first quarter ended January 31, 2022, A’s net revenue increased 8.1% year-over-year to $1.67 billion. The company’s non-GAAP income from operations came in at $441 million, representing an 11.4% rise from the prior-year period. A’s non-GAAP net income increased 12.2% year-over-year to $368 million. Its non-GAAP EPS came in at $1.21, representing a 14.2% year-over-year improvement. As of January 31, 2022, the company had $1.11 billion in cash and cash equivalents.
Past and Expected Financial Performance
Over the past three years, TMO’s revenue and EBITDA have increased at CAGRs of 18.6% and 27.2%, respectively.
TMO’s EPS is expected to decrease 9.7% year-over-year in fiscal 2022, ending December 31, 2022, and rise 7.7% in fiscal 2023. Its revenue is expected to grow 8.5% in fiscal 2022 and 5.3% in fiscal 2023. Analysts expect the company’s EPS to grow at a 9.4% rate per annum over the next five years.
A’s revenue and EBITDA have increased at CAGRs of 8.9% and 13.1%, respectively, over the past three years.
Analysts expect A’s EPS to grow 20.6% year-over-year in fiscal 2022, ending October 31, 2022, and increase by 11% in fiscal 2023. Its revenue is expected to rise 14.5% year-over-year in fiscal 2022 and 6.5% in fiscal 2023. Analysts expect the company’s EPS to grow at a 14.2% rate per annum over the next five years.
In terms of forward EV/Sales, TMO is currently trading at 5.8x, 3.9% higher than A’s 5.58x. In terms of forward EV/EBITDA, A’s 19.73x compares with TMO’s 20.84x.
TMO’s trailing-12-month revenue is almost 6.4 times A’s. However, A is more profitable, with a 54% gross profit margin versus TMO’s 48.4%.
Furthermore, A’s ROE, ROA, and ROTC of 24.2%, 9.1%, and 11.8% compare with TMO’s 20%, 7.9% and 9.7%, respectively.
While A has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, TMO has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
A has a B grade for Growth, consistent with their higher growth rates over the past year. A’s 22.7% EBITDA has grown 51.7% over the past year. TMO’s C grade for Growth reflects its negative EPS growth rates.
Of the 49 stocks in the Medical – Diagnostics/Research industry, A is ranked #3, while TMO is ranked #27.
Beyond what we have stated above, our POWR Ratings system has also graded A and TMO for Sentiment, Stability, Momentum, Value, and Quality. Get all TMO ratings here. Also, click here to see the additional POWR Ratings for A.
Surging demand and continued advancements should benefit diagnostics and research stocks TMO and A. However, higher profitability and relatively lower valuation make A a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Ratings of Buy or Strong Buy. Click here to access the top-rated stocks in the Medical – Diagnostics/Research industry.
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TMO shares were trading at $541.23 per share on Monday afternoon, down $11.69 (-2.11%). Year-to-date, TMO has declined -18.84%, versus a -13.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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