Stock Analysis on Net
Stock Analysis on Net

Thermo Fisher Scientific Inc. (NYSE:TMO)

Dividend Discount Model (DDM)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

Intrinsic Stock Value (Valuation Summary)

Thermo Fisher Scientific Inc., dividends per share (DPS) forecast

US$

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Year Value DPSt or Terminal value (TVt) Calculation Present value at 12.01%
0 DPS01 1.40
1 DPS1 1.60 = 1.40 × (1 + 14.59%) 1.43
2 DPS2 1.83 = 1.60 × (1 + 13.87%) 1.46
3 DPS3 2.07 = 1.83 × (1 + 13.15%) 1.47
4 DPS4 2.32 = 2.07 × (1 + 12.43%) 1.48
5 DPS5 2.60 = 2.32 × (1 + 11.70%) 1.47
5 Terminal value (TV5) 943.99 = 2.60 × (1 + 11.70%) ÷ (12.01% – 11.70%) 535.39
Intrinsic value of Thermo Fisher Scientific Inc. common stock (per share) $542.70
Current share price $509.12

Based on: 10-K (reporting date: 2023-12-31).

1 DPS0 = Sum of the last year dividends per share of Thermo Fisher Scientific Inc. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.67%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Thermo Fisher Scientific Inc. common stock βTMO 0.81
 
Required rate of return on Thermo Fisher Scientific Inc. common stock3 rTMO 12.01%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rTMO = RF + βTMO [E(RM) – RF]
= 4.67% + 0.81 [13.79% – 4.67%]
= 12.01%

Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Thermo Fisher Scientific Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends declared 541 471 410 350 304
Net income attributable to Thermo Fisher Scientific Inc. 5,995 6,950 7,725 6,375 3,696
Revenues 42,857 44,915 39,211 32,218 25,542
Total assets 98,726 97,154 95,123 69,052 58,381
Total Thermo Fisher Scientific Inc. shareholders’ equity 46,735 43,978 40,793 34,507 29,675
Financial Ratios
Retention rate1 0.91 0.93 0.95 0.95 0.92
Profit margin2 13.99% 15.47% 19.70% 19.79% 14.47%
Asset turnover3 0.43 0.46 0.41 0.47 0.44
Financial leverage4 2.11 2.21 2.33 2.00 1.97
Averages
Retention rate 0.93
Profit margin 16.68%
Asset turnover 0.44
Financial leverage 2.12
 
Dividend growth rate (g)5 14.59%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income attributable to Thermo Fisher Scientific Inc. – Dividends declared) ÷ Net income attributable to Thermo Fisher Scientific Inc.
= (5,995 – 541) ÷ 5,995
= 0.91

2 Profit margin = 100 × Net income attributable to Thermo Fisher Scientific Inc. ÷ Revenues
= 100 × 5,995 ÷ 42,857
= 13.99%

3 Asset turnover = Revenues ÷ Total assets
= 42,857 ÷ 98,726
= 0.43

4 Financial leverage = Total assets ÷ Total Thermo Fisher Scientific Inc. shareholders’ equity
= 98,726 ÷ 46,735
= 2.11

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.93 × 16.68% × 0.44 × 2.12
= 14.59%

Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × r – D0) ÷ (P0 + D0)
= 100 × ($509.12 × 12.01% – $1.40) ÷ ($509.12 + $1.40)
= 11.70%

where:
P0 = current price of share of Thermo Fisher Scientific Inc. common stock
D0 = the last year dividends per share of Thermo Fisher Scientific Inc. common stock
r = required rate of return on Thermo Fisher Scientific Inc. common stock

Dividend growth rate (g) forecast

Thermo Fisher Scientific Inc., H-model

Microsoft Excel
Year Value gt
1 g1 14.59%
2 g2 13.87%
3 g3 13.15%
4 g4 12.43%
5 and thereafter g5 11.70%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 14.59% + (11.70% – 14.59%) × (2 – 1) ÷ (5 – 1)
= 13.87%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 14.59% + (11.70% – 14.59%) × (3 – 1) ÷ (5 – 1)
= 13.15%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 14.59% + (11.70% – 14.59%) × (4 – 1) ÷ (5 – 1)
= 12.43%