Intrinsic value of Thermo Fisher Scientific - TMO

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$173.42

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$173.42

 
Intrinsic value

$75.97

 
Up/down potential

-56%

 
Rating

str. sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of TMO stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 68.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.72
  10.90
  10.31
  9.78
  9.30
  8.87
  8.48
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
Revenue, $m
  18,274
  20,266
  22,355
  24,541
  26,824
  29,204
  31,681
  34,259
  36,938
  39,723
  42,618
  45,625
  48,751
  52,001
  55,381
  58,897
  62,558
  66,370
  70,341
  74,481
  78,799
  83,304
  88,007
  92,919
  98,050
  103,414
  109,023
  114,890
  121,029
  127,454
  134,181
Variable operating expenses, $m
 
  17,237
  18,794
  20,423
  22,124
  23,898
  25,744
  27,665
  29,662
  31,738
  33,895
  34,004
  36,334
  38,756
  41,275
  43,896
  46,624
  49,464
  52,424
  55,510
  58,728
  62,085
  65,590
  69,251
  73,076
  77,073
  81,254
  85,626
  90,201
  94,990
  100,003
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  15,825
  17,237
  18,794
  20,423
  22,124
  23,898
  25,744
  27,665
  29,662
  31,738
  33,895
  34,004
  36,334
  38,756
  41,275
  43,896
  46,624
  49,464
  52,424
  55,510
  58,728
  62,085
  65,590
  69,251
  73,076
  77,073
  81,254
  85,626
  90,201
  94,990
  100,003
Operating income, $m
  2,449
  3,029
  3,561
  4,118
  4,700
  5,306
  5,937
  6,593
  7,276
  7,985
  8,722
  11,621
  12,418
  13,245
  14,106
  15,002
  15,934
  16,905
  17,917
  18,971
  20,071
  21,219
  22,416
  23,668
  24,975
  26,341
  27,770
  29,264
  30,827
  32,464
  34,177
EBITDA, $m
  4,207
  6,021
  6,642
  7,291
  7,969
  8,676
  9,413
  10,178
  10,974
  11,802
  12,662
  13,555
  14,484
  15,450
  16,454
  17,499
  18,586
  19,719
  20,899
  22,129
  23,411
  24,750
  26,147
  27,606
  29,131
  30,725
  32,391
  34,134
  35,958
  37,867
  39,865
Interest expense (income), $m
  458
  554
  643
  738
  836
  939
  1,046
  1,158
  1,275
  1,395
  1,521
  1,652
  1,787
  1,928
  2,075
  2,227
  2,386
  2,551
  2,723
  2,902
  3,089
  3,284
  3,487
  3,699
  3,921
  4,152
  4,394
  4,647
  4,912
  5,189
  5,479
Earnings before tax, $m
  2,024
  2,475
  2,918
  3,381
  3,863
  4,367
  4,890
  5,435
  6,001
  6,590
  7,201
  9,970
  10,630
  11,317
  12,031
  12,775
  13,548
  14,354
  15,194
  16,069
  16,982
  17,935
  18,929
  19,968
  21,054
  22,189
  23,375
  24,617
  25,916
  27,275
  28,699
Tax expense, $m
  -1
  668
  788
  913
  1,043
  1,179
  1,320
  1,467
  1,620
  1,779
  1,944
  2,692
  2,870
  3,056
  3,248
  3,449
  3,658
  3,876
  4,102
  4,339
  4,585
  4,842
  5,111
  5,391
  5,685
  5,991
  6,311
  6,646
  6,997
  7,364
  7,749
Net income, $m
  2,022
  1,807
  2,130
  2,468
  2,820
  3,188
  3,570
  3,968
  4,381
  4,811
  5,257
  7,278
  7,760
  8,261
  8,783
  9,325
  9,890
  10,478
  11,091
  11,730
  12,397
  13,092
  13,818
  14,577
  15,369
  16,198
  17,064
  17,970
  18,918
  19,911
  20,950

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  802
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  45,908
  50,039
  55,198
  60,596
  66,232
  72,108
  78,225
  84,589
  91,206
  98,082
  105,228
  112,655
  120,373
  128,398
  136,743
  145,426
  154,464
  163,876
  173,682
  183,904
  194,565
  205,689
  217,301
  229,429
  242,100
  255,344
  269,193
  283,679
  298,836
  314,700
  331,310
Adjusted assets (=assets-cash), $m
  45,106
  50,039
  55,198
  60,596
  66,232
  72,108
  78,225
  84,589
  91,206
  98,082
  105,228
  112,655
  120,373
  128,398
  136,743
  145,426
  154,464
  163,876
  173,682
  183,904
  194,565
  205,689
  217,301
  229,429
  242,100
  255,344
  269,193
  283,679
  298,836
  314,700
  331,310
Revenue / Adjusted assets
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
  0.405
Average production assets, $m
  15,877
  17,611
  19,427
  21,326
  23,310
  25,378
  27,531
  29,771
  32,099
  34,520
  37,035
  39,648
  42,365
  45,189
  48,126
  51,182
  54,363
  57,675
  61,126
  64,724
  68,476
  72,391
  76,478
  80,746
  85,206
  89,867
  94,741
  99,839
  105,174
  110,757
  116,603
Working capital, $m
  2,155
  2,898
  3,197
  3,509
  3,836
  4,176
  4,530
  4,899
  5,282
  5,680
  6,094
  6,524
  6,971
  7,436
  7,919
  8,422
  8,946
  9,491
  10,059
  10,651
  11,268
  11,912
  12,585
  13,287
  14,021
  14,788
  15,590
  16,429
  17,307
  18,226
  19,188
Total debt, $m
  16,628
  18,379
  21,072
  23,890
  26,832
  29,899
  33,093
  36,415
  39,868
  43,458
  47,188
  51,065
  55,094
  59,283
  63,639
  68,171
  72,889
  77,802
  82,921
  88,257
  93,822
  99,629
  105,690
  112,021
  118,635
  125,549
  132,778
  140,339
  148,251
  156,533
  165,203
Total liabilities, $m
  24,368
  26,120
  28,813
  31,631
  34,573
  37,640
  40,834
  44,156
  47,609
  51,199
  54,929
  58,806
  62,835
  67,024
  71,380
  75,912
  80,630
  85,543
  90,662
  95,998
  101,563
  107,370
  113,431
  119,762
  126,376
  133,290
  140,519
  148,080
  155,992
  164,274
  172,944
Total equity, $m
  21,539
  23,919
  26,385
  28,965
  31,659
  34,467
  37,392
  40,434
  43,596
  46,883
  50,299
  53,849
  57,538
  61,374
  65,363
  69,514
  73,834
  78,333
  83,020
  87,906
  93,002
  98,319
  103,870
  109,667
  115,724
  122,055
  128,674
  135,598
  142,844
  150,427
  158,366
Total liabilities and equity, $m
  45,907
  50,039
  55,198
  60,596
  66,232
  72,107
  78,226
  84,590
  91,205
  98,082
  105,228
  112,655
  120,373
  128,398
  136,743
  145,426
  154,464
  163,876
  173,682
  183,904
  194,565
  205,689
  217,301
  229,429
  242,100
  255,345
  269,193
  283,678
  298,836
  314,701
  331,310
Debt-to-equity ratio
  0.772
  0.770
  0.800
  0.820
  0.850
  0.870
  0.890
  0.900
  0.910
  0.930
  0.940
  0.950
  0.960
  0.970
  0.970
  0.980
  0.990
  0.990
  1.000
  1.000
  1.010
  1.010
  1.020
  1.020
  1.030
  1.030
  1.030
  1.030
  1.040
  1.040
  1.040
Adjusted equity ratio
  0.460
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,022
  1,807
  2,130
  2,468
  2,820
  3,188
  3,570
  3,968
  4,381
  4,811
  5,257
  7,278
  7,760
  8,261
  8,783
  9,325
  9,890
  10,478
  11,091
  11,730
  12,397
  13,092
  13,818
  14,577
  15,369
  16,198
  17,064
  17,970
  18,918
  19,911
  20,950
Depreciation, amort., depletion, $m
  1,758
  2,992
  3,080
  3,173
  3,270
  3,371
  3,476
  3,585
  3,699
  3,817
  3,939
  1,934
  2,067
  2,204
  2,348
  2,497
  2,652
  2,813
  2,982
  3,157
  3,340
  3,531
  3,731
  3,939
  4,156
  4,384
  4,622
  4,870
  5,130
  5,403
  5,688
Funds from operations, $m
  2,929
  4,799
  5,211
  5,641
  6,090
  6,558
  7,046
  7,553
  8,080
  8,627
  9,196
  9,212
  9,827
  10,466
  11,130
  11,822
  12,542
  13,292
  14,073
  14,888
  15,737
  16,624
  17,549
  18,516
  19,526
  20,582
  21,686
  22,840
  24,049
  25,314
  26,638
Change in working capital, $m
  -227
  285
  299
  313
  326
  340
  354
  369
  383
  398
  414
  430
  447
  465
  483
  503
  523
  545
  568
  592
  617
  644
  673
  702
  734
  767
  802
  839
  878
  919
  962
Cash from operations, $m
  3,156
  5,184
  4,912
  5,328
  5,764
  6,218
  6,691
  7,184
  7,696
  8,229
  8,783
  8,782
  9,380
  10,001
  10,647
  11,319
  12,019
  12,747
  13,505
  14,296
  15,120
  15,979
  16,877
  17,813
  18,792
  19,814
  20,883
  22,001
  23,171
  24,395
  25,676
Maintenance CAPEX, $m
  0
  -774
  -859
  -948
  -1,040
  -1,137
  -1,238
  -1,343
  -1,452
  -1,566
  -1,684
  -1,807
  -1,934
  -2,067
  -2,204
  -2,348
  -2,497
  -2,652
  -2,813
  -2,982
  -3,157
  -3,340
  -3,531
  -3,731
  -3,939
  -4,156
  -4,384
  -4,622
  -4,870
  -5,130
  -5,403
New CAPEX, $m
  -444
  -1,734
  -1,816
  -1,900
  -1,984
  -2,068
  -2,153
  -2,240
  -2,329
  -2,420
  -2,515
  -2,614
  -2,716
  -2,824
  -2,937
  -3,056
  -3,181
  -3,312
  -3,451
  -3,598
  -3,752
  -3,915
  -4,087
  -4,268
  -4,460
  -4,661
  -4,874
  -5,098
  -5,334
  -5,583
  -5,846
Cash from investing activities, $m
  -5,532
  -2,508
  -2,675
  -2,848
  -3,024
  -3,205
  -3,391
  -3,583
  -3,781
  -3,986
  -4,199
  -4,421
  -4,650
  -4,891
  -5,141
  -5,404
  -5,678
  -5,964
  -6,264
  -6,580
  -6,909
  -7,255
  -7,618
  -7,999
  -8,399
  -8,817
  -9,258
  -9,720
  -10,204
  -10,713
  -11,249
Free cash flow, $m
  -2,376
  2,675
  2,237
  2,481
  2,740
  3,013
  3,300
  3,601
  3,916
  4,243
  4,584
  4,362
  4,729
  5,110
  5,506
  5,916
  6,341
  6,782
  7,241
  7,716
  8,210
  8,724
  9,258
  9,814
  10,394
  10,997
  11,626
  12,282
  12,966
  13,681
  14,428
Issuance/(repayment) of debt, $m
  4,174
  2,553
  2,693
  2,818
  2,942
  3,067
  3,193
  3,322
  3,454
  3,590
  3,730
  3,876
  4,029
  4,189
  4,356
  4,532
  4,718
  4,913
  5,119
  5,336
  5,565
  5,807
  6,062
  6,331
  6,614
  6,914
  7,229
  7,562
  7,912
  8,281
  8,670
Issuance/(repurchase) of shares, $m
  -1,115
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  3,099
  2,553
  2,693
  2,818
  2,942
  3,067
  3,193
  3,322
  3,454
  3,590
  3,730
  3,876
  4,029
  4,189
  4,356
  4,532
  4,718
  4,913
  5,119
  5,336
  5,565
  5,807
  6,062
  6,331
  6,614
  6,914
  7,229
  7,562
  7,912
  8,281
  8,670
Total cash flow (excl. dividends), $m
  572
  5,229
  4,930
  5,299
  5,682
  6,080
  6,494
  6,923
  7,369
  7,833
  8,314
  8,238
  8,758
  9,299
  9,862
  10,448
  11,059
  11,695
  12,359
  13,052
  13,775
  14,531
  15,320
  16,145
  17,008
  17,910
  18,855
  19,843
  20,878
  21,962
  23,098
Retained Cash Flow (-), $m
  -189
  -2,380
  -2,466
  -2,580
  -2,694
  -2,808
  -2,924
  -3,042
  -3,163
  -3,287
  -3,416
  -3,550
  -3,689
  -3,836
  -3,989
  -4,150
  -4,320
  -4,499
  -4,687
  -4,886
  -5,096
  -5,317
  -5,551
  -5,797
  -6,057
  -6,331
  -6,620
  -6,924
  -7,245
  -7,583
  -7,939
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  2,849
  2,464
  2,719
  2,988
  3,272
  3,570
  3,881
  4,207
  4,546
  4,898
  4,688
  5,069
  5,463
  5,873
  6,298
  6,739
  7,197
  7,672
  8,166
  8,680
  9,214
  9,769
  10,348
  10,951
  11,580
  12,235
  12,919
  13,633
  14,379
  15,158
Discount rate, %
 
  7.20
  7.56
  7.94
  8.33
  8.75
  9.19
  9.65
  10.13
  10.64
  11.17
  11.73
  12.31
  12.93
  13.58
  14.26
  14.97
  15.72
  16.50
  17.33
  18.19
  19.10
  20.06
  21.06
  22.11
  23.22
  24.38
  25.60
  26.88
  28.22
  29.64
PV of cash for distribution, $m
 
  2,658
  2,130
  2,162
  2,169
  2,151
  2,106
  2,037
  1,944
  1,830
  1,699
  1,384
  1,258
  1,124
  988
  853
  723
  602
  491
  392
  307
  234
  175
  128
  91
  63
  42
  27
  17
  11
  6
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Thermo Fisher Scientific Inc. provides analytical instruments, equipment, reagents and consumables, software, and services for research, manufacturing, analysis, discovery, and diagnostics worldwide. Its Life Sciences Solutions segment offers reagents, instruments, and consumables used in biological and medical research, discovery, and production of new drugs and vaccines, as well as diagnosis of diseases. This segment serves pharmaceutical, biotechnology, agricultural, clinical, academic, and government markets. The company’s Analytical Instruments segment provides instruments, consumables, software, and services for applications in the laboratory, on the production line, and in the field. This segment serves pharmaceutical, biotechnology, academic, government, environmental, and other research and industrial markets, as well as clinical laboratories. Its Specialty Diagnostics segment offers liquid, ready-to-use, and lyophilized immunodiagnostic reagent kits, calibrators, controls, and calibration verification fluids; blood-test systems to support the clinical diagnosis and monitoring of allergy, asthma, and autoimmune diseases; dehydrated and prepared culture media, collection and transport systems, instrumentation, and consumables; products for cancer diagnosis and medical research in histology, cytology, and hematology; and human leukocyte antigen typing and testing for the organ transplant market. This segment serves healthcare, clinical, pharmaceutical, industrial, and food safety laboratories. The company’s Laboratory Products and Services segment offers sample preparation, storage, and preservation equipment; controlled temperature technology products; centrifugation products and biological safety cabinets; water analysis instruments and laboratory equipment; laboratory consumables; chemicals; research and safety market channel services; and biopharma services. Thermo Fisher Scientific Inc. was founded in 1956 and is headquartered in Waltham, Massachusetts.

FINANCIAL RATIOS  of  Thermo Fisher Scientific (TMO)

Valuation Ratios
P/E Ratio 33.7
Price to Sales 3.7
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 21.6
Price to Free Cash Flow 25.2
Growth Rates
Sales Growth Rate 7.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 5%
Cap. Spend. - 3 Yr. Gr. Rate 9.5%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 71.4%
Total Debt to Equity 77.2%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.7%
Ret/ On Assets - 3 Yr. Avg. 5.9%
Return On Total Capital 5.6%
Ret/ On T. Cap. - 3 Yr. Avg. 5.8%
Return On Equity 9.4%
Return On Equity - 3 Yr. Avg. 9.7%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 45.8%
Gross Margin - 3 Yr. Avg. 45.3%
EBITDA Margin 23.2%
EBITDA Margin - 3 Yr. Avg. 24%
Operating Margin 13.4%
Oper. Margin - 3 Yr. Avg. 14%
Pre-Tax Margin 11.1%
Pre-Tax Margin - 3 Yr. Avg. 11.6%
Net Profit Margin 11.1%
Net Profit Margin - 3 Yr. Avg. 11.3%
Effective Tax Rate -0%
Eff/ Tax Rate - 3 Yr. Avg. 2.3%
Payout Ratio 11.8%

TMO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TMO stock intrinsic value calculation we used $18274 million for the last fiscal year's total revenue generated by Thermo Fisher Scientific. The default revenue input number comes from 2016 income statement of Thermo Fisher Scientific. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our TMO stock valuation model: a) initial revenue growth rate of 10.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.2%, whose default value for TMO is calculated based on our internal credit rating of Thermo Fisher Scientific, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Thermo Fisher Scientific.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of TMO stock the variable cost ratio is equal to 86.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for TMO stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Thermo Fisher Scientific.

Corporate tax rate of 27% is the nominal tax rate for Thermo Fisher Scientific. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the TMO stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for TMO are equal to 86.9%.

Life of production assets of 20.5 years is the average useful life of capital assets used in Thermo Fisher Scientific operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for TMO is equal to 14.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $21539 million for Thermo Fisher Scientific - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 392.366 million for Thermo Fisher Scientific is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Thermo Fisher Scientific at the current share price and the inputted number of shares is $68.0 billion.


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COMPANY NEWS

▶ Analysts Recommendations for Abbott Laboratories in May 2017   [May-25-17 03:54PM  Market Realist]
▶ Company News for May 16, 2017   [10:12AM  Zacks]
▶ Thermo Fisher Scientific: A Growth Story (TMO)   [May-15-17 04:11PM  Investopedia]
▶ [$$] Thermo Fisher to Buy Patheon for $5.2 Billion   [01:31PM  The Wall Street Journal]
▶ Did Pantheon Get Enough in Its Buyout?   [11:58AM  24/7 Wall St.]
▶ Why Patheon N.V. Is Soaring Today   [11:05AM  Motley Fool]
▶ Thermo Fisher buys Patheon   [10:55AM  Reuters Videos]
▶ Waltham's Thermo Fisher buys drug ingredients maker for $5.2B   [10:40AM  American City Business Journals]
▶ Story Stocks from Briefing.com   [10:03AM  Briefing.com]
▶ Thermo Fisher buying Patheon for $5.2 billion   [07:53AM  Associated Press]
▶ DSM Informs Market on Patheon N.V.   [07:18AM  PR Newswire]
▶ Thermo Fisher in talks to buy Patheon - Bloomberg   [May-14-17 11:45PM  Reuters]
▶ How to Get on Board Thermo Fisher Scientific   [May-08-17 11:20AM  TheStreet.com]
▶ 3 Sexy Stocks And One For Downside Protection   [May-05-17 10:35AM  Forbes]
▶ Edwards Lifesciencse and Deckers rise; US Steel plunges   [Apr-26-17 05:27PM  Associated Press]
▶ Thermo Fisher beats Street 1Q forecasts   [06:14AM  Associated Press]
▶ The Top Gene-Sequencing Stock to Buy in 2017   [Apr-20-17 04:20PM  Motley Fool]
▶ Thermo Fisher CEO got $59M in compensation, stock value in 2016   [Apr-04-17 02:48PM  American City Business Journals]
▶ Exxon, Thermo Fisher and 2 More Are Showing Red Flags   [Mar-24-17 07:00AM  TheStreet.com]
▶ [$$] GTCR Sells Cole-Parmer Instrument to Golden Gate   [04:50PM  The Wall Street Journal]
▶ Thermo Fisher Scientific Elects New Director to Board   [Mar-01-17 09:00AM  Business Wire]
▶ Patent Damages In The Global Supply Chain   [Feb-24-17 09:11AM  at Forbes]
▶ Thermo Fisher unit prevails in Supreme Court patent case   [Feb-22-17 01:10PM  at bizjournals.com]
▶ Better Buy: Illumina, Inc. vs. Thermo Fisher Scientific   [Feb-08-17 04:53PM  at Motley Fool]
Stock chart of TMO Financial statements of TMO Annual reports of TMO
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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