Thermo Fisher Scientific Inc., a global leader in life sciences products and services, has received a rating upgrade from Fitch Ratings, a credit rating agency. Fitch Ratings has upgraded Thermo Fisher’s Long-Term Issuer Default Rating (IDR) to ‘A-’ from ‘BBB+’ and affirmed its Short-Term IDR at ‘F2’. The Rating Outlook is Stable.
Fitch Recognizes Thermo Fisher’s Operating Strength
According to Fitch Ratings, the rating upgrade reflects Thermo Fisher’s proven operating strength, resulting in a doubling of its revenue over the past five years and increasingly reinforcing the company’s strong and consistent cash generation. The ‘A-’ rating is also supported by Thermo Fisher’s leading market position with unmatched breadth and depth of its product and service offerings across geographies and end-markets, providing a better diversification profile than peers’ and reducing cyclicality impacts during volatile times.
Fitch Ratings expects no change to the company’s financial and capital deployment strategy and anticipates the company to continue to employ an aggressive approach to strategic mergers and acquisitions (M&A). The company’s strong historical track record of integration and debt repayment in the wake of acquisitions lends confidence that the strategy is consistent with maintaining financial flexibility supportive of the ‘A-’ rating.
Thermo Fisher Well-Positioned to Navigate Dynamic Times
Thermo Fisher’s execution over the recent years and through the pandemic illustrated its robust operating strengths both through pandemic response and resilience in its core businesses. Fitch Ratings believes that Thermo Fisher is well-positioned to mitigate the effects of cyclical downturns or secular headwinds to sales or profitability, supported by its considerably strengthened end market positions and revenue mixes relative to the Great Recession.
As of last twelve months (LTM) first quarter 2023, 59% of revenues are derived from Pharma & Biotech and 13% from Industrial & Applied, compared to 24% and 31%, respectively, in 2008. Total revenue and revenue contribution from recurring services and consumables increased from $10.5 billion and 65% in 2008 to $44.9 billion and 82% in 2022. Fitch Ratings views the significant increase in revenue scale and favorable shift in product mix as an enhancement to resilience, which underpins Thermo Fisher’s operational stability during economic downturns.
Fitch Ratings is aware of the ongoing conservative capital spending approach adopted by customers in the Life Sciences industry, but expects the underlying market to remain healthy in the medium to longer term driven by favorable demographics and demand for increasingly advanced and complex therapeutics.
Thermo Fisher Continues to Deliver Growth and Innovation
Thermo Fisher reported strong financial results for the second quarter of 2023, with revenue growth of 14% year-over-year to $12.6 billion, adjusted earnings per share (EPS) growth of 18% to $4.01, and free cash flow growth of 21% to $2.4 billion. The company also raised its full-year guidance for revenue and adjusted EPS, reflecting its confidence in its growth prospects.
The company also announced several strategic initiatives to enhance its growth and innovation capabilities, including:
- The completion of the acquisition of PPD Inc., a leading contract research organization (CRO), for $20.9 billion in cash, expanding its service offerings for pharma and biotech customers.
- The agreement to acquire Mesa Biotech Inc., a point-of-care molecular diagnostic company, for $450 million in cash, plus up to $100 million in contingent payments based on milestones.
- The launch of several new products and solutions, such as the Ion Torrent Genexus System NGS Dx Platform for clinical oncology testing, the Thermo Scientific Vanquish Core HPLC System for routine analysis, and the Thermo Scientific Orbitrap IQ-X Tribrid Mass Spectrometer for small molecule characterization.
Thermo Fisher’s CEO Marc N. Casper commented on the company’s performance and outlook: “We delivered another very strong quarter by continuing to execute our proven growth strategy – innovating for our customers, leveraging our scale in high-growth markets and delivering operational excellence. We’re pleased with our excellent start to the year, which positions us well to achieve our updated guidance for 2023.”
