Intrinsic value of Thermo Fisher Scientific - TMO

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$155.04

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$155.04

 
Intrinsic value

$73.94

 
Up/down potential

-52%

 
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 60.4

 

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
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
Revenue, $m
  18,274
  19,444
  20,661
  21,928
  23,248
  24,624
  26,059
  27,556
  29,118
  30,749
  32,454
  34,235
  36,097
  38,045
  40,082
  42,215
  44,447
  46,785
  49,233
  51,798
  54,486
  57,303
  60,256
  63,352
  66,598
  70,003
  73,573
  77,318
  81,247
  85,369
  89,694
Variable operating expenses, $m
 
  16,624
  17,531
  18,475
  19,459
  20,485
  21,554
  22,670
  23,834
  25,050
  26,320
  25,515
  26,903
  28,354
  29,873
  31,462
  33,126
  34,868
  36,693
  38,605
  40,608
  42,707
  44,908
  47,216
  49,635
  52,172
  54,833
  57,624
  60,552
  63,624
  66,848
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
  16,624
  17,531
  18,475
  19,459
  20,485
  21,554
  22,670
  23,834
  25,050
  26,320
  25,515
  26,903
  28,354
  29,873
  31,462
  33,126
  34,868
  36,693
  38,605
  40,608
  42,707
  44,908
  47,216
  49,635
  52,172
  54,833
  57,624
  60,552
  63,624
  66,848
Operating income, $m
  2,449
  2,820
  3,130
  3,453
  3,789
  4,139
  4,505
  4,886
  5,284
  5,699
  6,134
  8,720
  9,194
  9,690
  10,209
  10,753
  11,321
  11,917
  12,540
  13,194
  13,878
  14,596
  15,348
  16,137
  16,963
  17,831
  18,740
  19,694
  20,695
  21,745
  22,846
EBITDA, $m
  4,207
  5,777
  6,138
  6,515
  6,907
  7,316
  7,742
  8,187
  8,651
  9,136
  9,642
  10,171
  10,725
  11,303
  11,909
  12,542
  13,205
  13,900
  14,627
  15,389
  16,188
  17,025
  17,902
  18,822
  19,787
  20,798
  21,859
  22,971
  24,139
  25,363
  26,648
Interest expense (income), $m
  458
  554
  606
  661
  718
  778
  840
  905
  972
  1,043
  1,116
  1,193
  1,273
  1,357
  1,445
  1,537
  1,633
  1,734
  1,840
  1,950
  2,066
  2,187
  2,314
  2,447
  2,587
  2,733
  2,887
  3,048
  3,217
  3,394
  3,580
Earnings before tax, $m
  2,024
  2,266
  2,524
  2,791
  3,071
  3,361
  3,665
  3,981
  4,312
  4,657
  5,017
  7,527
  7,921
  8,333
  8,764
  9,215
  9,688
  10,183
  10,701
  11,244
  11,813
  12,409
  13,034
  13,689
  14,376
  15,097
  15,853
  16,646
  17,478
  18,350
  19,266
Tax expense, $m
  -1
  612
  681
  754
  829
  908
  990
  1,075
  1,164
  1,257
  1,355
  2,032
  2,139
  2,250
  2,366
  2,488
  2,616
  2,749
  2,889
  3,036
  3,189
  3,350
  3,519
  3,696
  3,882
  4,076
  4,280
  4,494
  4,719
  4,955
  5,202
Net income, $m
  2,022
  1,654
  1,842
  2,038
  2,241
  2,454
  2,675
  2,906
  3,148
  3,400
  3,663
  5,495
  5,782
  6,083
  6,398
  6,727
  7,072
  7,433
  7,812
  8,208
  8,623
  9,058
  9,515
  9,993
  10,495
  11,021
  11,573
  12,151
  12,759
  13,396
  14,064

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
  48,009
  51,014
  54,143
  57,403
  60,800
  64,343
  68,039
  71,897
  75,925
  80,133
  84,530
  89,128
  93,937
  98,968
  104,234
  109,746
  115,518
  121,563
  127,897
  134,534
  141,490
  148,781
  156,425
  164,440
  172,846
  181,662
  190,909
  200,610
  210,788
  221,466
Adjusted assets (=assets-cash), $m
  45,106
  48,009
  51,014
  54,143
  57,403
  60,800
  64,343
  68,039
  71,897
  75,925
  80,133
  84,530
  89,128
  93,937
  98,968
  104,234
  109,746
  115,518
  121,563
  127,897
  134,534
  141,490
  148,781
  156,425
  164,440
  172,846
  181,662
  190,909
  200,610
  210,788
  221,466
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
  16,896
  17,954
  19,055
  20,203
  21,398
  22,645
  23,946
  25,304
  26,721
  28,202
  29,750
  31,368
  33,061
  34,831
  36,685
  38,625
  40,656
  42,784
  45,013
  47,349
  49,797
  52,363
  55,053
  57,874
  60,832
  63,935
  67,190
  70,604
  74,186
  77,944
Working capital, $m
  2,155
  2,780
  2,954
  3,136
  3,324
  3,521
  3,726
  3,940
  4,164
  4,397
  4,641
  4,896
  5,162
  5,440
  5,732
  6,037
  6,356
  6,690
  7,040
  7,407
  7,792
  8,194
  8,617
  9,059
  9,524
  10,010
  10,521
  11,057
  11,618
  12,208
  12,826
Total debt, $m
  16,628
  17,320
  18,888
  20,522
  22,223
  23,997
  25,846
  27,775
  29,789
  31,892
  34,088
  36,384
  38,784
  41,294
  43,920
  46,669
  49,546
  52,559
  55,715
  59,021
  62,486
  66,117
  69,923
  73,913
  78,097
  82,485
  87,087
  91,914
  96,978
  102,290
  107,864
Total liabilities, $m
  24,368
  25,061
  26,629
  28,263
  29,964
  31,738
  33,587
  35,516
  37,530
  39,633
  41,829
  44,125
  46,525
  49,035
  51,661
  54,410
  57,287
  60,300
  63,456
  66,762
  70,227
  73,858
  77,664
  81,654
  85,838
  90,226
  94,828
  99,655
  104,719
  110,031
  115,605
Total equity, $m
  21,539
  22,948
  24,385
  25,880
  27,439
  29,063
  30,756
  32,523
  34,367
  36,292
  38,303
  40,406
  42,603
  44,902
  47,307
  49,824
  52,459
  55,218
  58,107
  61,135
  64,307
  67,632
  71,117
  74,771
  78,602
  82,620
  86,834
  91,255
  95,892
  100,757
  105,861
Total liabilities and equity, $m
  45,907
  48,009
  51,014
  54,143
  57,403
  60,801
  64,343
  68,039
  71,897
  75,925
  80,132
  84,531
  89,128
  93,937
  98,968
  104,234
  109,746
  115,518
  121,563
  127,897
  134,534
  141,490
  148,781
  156,425
  164,440
  172,846
  181,662
  190,910
  200,611
  210,788
  221,466
Debt-to-equity ratio
  0.772
  0.750
  0.770
  0.790
  0.810
  0.830
  0.840
  0.850
  0.870
  0.880
  0.890
  0.900
  0.910
  0.920
  0.930
  0.940
  0.940
  0.950
  0.960
  0.970
  0.970
  0.980
  0.980
  0.990
  0.990
  1.000
  1.000
  1.010
  1.010
  1.020
  1.020
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
  1,654
  1,842
  2,038
  2,241
  2,454
  2,675
  2,906
  3,148
  3,400
  3,663
  5,495
  5,782
  6,083
  6,398
  6,727
  7,072
  7,433
  7,812
  8,208
  8,623
  9,058
  9,515
  9,993
  10,495
  11,021
  11,573
  12,151
  12,759
  13,396
  14,064
Depreciation, amort., depletion, $m
  1,758
  2,957
  3,009
  3,062
  3,118
  3,177
  3,237
  3,301
  3,367
  3,436
  3,509
  1,451
  1,530
  1,613
  1,699
  1,789
  1,884
  1,983
  2,087
  2,196
  2,310
  2,429
  2,554
  2,686
  2,823
  2,967
  3,119
  3,278
  3,444
  3,619
  3,802
Funds from operations, $m
  2,929
  4,611
  4,851
  5,100
  5,360
  5,630
  5,913
  6,207
  6,515
  6,836
  7,171
  6,946
  7,312
  7,696
  8,097
  8,517
  8,956
  9,416
  9,899
  10,404
  10,933
  11,488
  12,069
  12,679
  13,318
  13,988
  14,691
  15,429
  16,203
  17,015
  17,866
Change in working capital, $m
  -227
  167
  174
  181
  189
  197
  205
  214
  223
  233
  244
  255
  266
  279
  291
  305
  319
  334
  350
  367
  384
  403
  422
  443
  464
  487
  511
  536
  562
  589
  618
Cash from operations, $m
  3,156
  5,114
  4,677
  4,919
  5,171
  5,434
  5,708
  5,993
  6,291
  6,602
  6,927
  6,691
  7,046
  7,417
  7,806
  8,212
  8,637
  9,082
  9,548
  10,037
  10,548
  11,085
  11,647
  12,236
  12,854
  13,502
  14,181
  14,893
  15,641
  16,425
  17,248
Maintenance CAPEX, $m
  0
  -774
  -824
  -876
  -930
  -985
  -1,044
  -1,105
  -1,168
  -1,234
  -1,303
  -1,376
  -1,451
  -1,530
  -1,613
  -1,699
  -1,789
  -1,884
  -1,983
  -2,087
  -2,196
  -2,310
  -2,429
  -2,554
  -2,686
  -2,823
  -2,967
  -3,119
  -3,278
  -3,444
  -3,619
New CAPEX, $m
  -444
  -1,019
  -1,058
  -1,101
  -1,147
  -1,196
  -1,247
  -1,301
  -1,358
  -1,418
  -1,481
  -1,548
  -1,618
  -1,692
  -1,771
  -1,853
  -1,940
  -2,031
  -2,128
  -2,229
  -2,336
  -2,448
  -2,566
  -2,690
  -2,821
  -2,958
  -3,103
  -3,255
  -3,414
  -3,582
  -3,758
Cash from investing activities, $m
  -5,532
  -1,793
  -1,882
  -1,977
  -2,077
  -2,181
  -2,291
  -2,406
  -2,526
  -2,652
  -2,784
  -2,924
  -3,069
  -3,222
  -3,384
  -3,552
  -3,729
  -3,915
  -4,111
  -4,316
  -4,532
  -4,758
  -4,995
  -5,244
  -5,507
  -5,781
  -6,070
  -6,374
  -6,692
  -7,026
  -7,377
Free cash flow, $m
  -2,376
  3,320
  2,795
  2,942
  3,094
  3,253
  3,417
  3,588
  3,766
  3,950
  4,143
  3,768
  3,977
  4,195
  4,422
  4,660
  4,908
  5,167
  5,437
  5,721
  6,017
  6,327
  6,652
  6,991
  7,347
  7,720
  8,111
  8,520
  8,949
  9,399
  9,871
Issuance/(repayment) of debt, $m
  4,174
  1,494
  1,569
  1,633
  1,702
  1,773
  1,849
  1,929
  2,014
  2,103
  2,197
  2,296
  2,400
  2,510
  2,626
  2,749
  2,877
  3,013
  3,156
  3,306
  3,464
  3,631
  3,806
  3,990
  4,184
  4,388
  4,602
  4,827
  5,064
  5,313
  5,574
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
  1,494
  1,569
  1,633
  1,702
  1,773
  1,849
  1,929
  2,014
  2,103
  2,197
  2,296
  2,400
  2,510
  2,626
  2,749
  2,877
  3,013
  3,156
  3,306
  3,464
  3,631
  3,806
  3,990
  4,184
  4,388
  4,602
  4,827
  5,064
  5,313
  5,574
Total cash flow (excl. dividends), $m
  572
  4,813
  4,364
  4,575
  4,796
  5,026
  5,266
  5,517
  5,779
  6,053
  6,340
  6,063
  6,377
  6,705
  7,048
  7,408
  7,785
  8,180
  8,593
  9,027
  9,481
  9,958
  10,458
  10,982
  11,531
  12,108
  12,713
  13,347
  14,013
  14,712
  15,445
Retained Cash Flow (-), $m
  -189
  -1,409
  -1,437
  -1,496
  -1,558
  -1,624
  -1,693
  -1,767
  -1,844
  -1,925
  -2,011
  -2,102
  -2,198
  -2,299
  -2,405
  -2,517
  -2,635
  -2,759
  -2,890
  -3,027
  -3,172
  -3,325
  -3,485
  -3,654
  -3,831
  -4,018
  -4,214
  -4,420
  -4,637
  -4,865
  -5,104
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
 
  3,404
  2,927
  3,079
  3,238
  3,402
  3,573
  3,750
  3,935
  4,128
  4,328
  3,961
  4,179
  4,406
  4,643
  4,891
  5,150
  5,421
  5,703
  5,999
  6,309
  6,633
  6,972
  7,328
  7,700
  8,090
  8,499
  8,927
  9,376
  9,847
  10,341
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
 
  3,176
  2,530
  2,449
  2,350
  2,236
  2,108
  1,968
  1,818
  1,662
  1,501
  1,170
  1,037
  907
  781
  663
  553
  453
  365
  288
  223
  169
  125
  90
  64
  44
  29
  19
  12
  7
  4
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 30.2
Price to Sales 3.3
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 19.3
Price to Free Cash Flow 22.5
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 6.4% 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 389.583 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 $60.4 billion.


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COMPANY NEWS

▶ 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]
▶ Billionaire Larry Robbins Knows How To Pick Mega-Cap Stocks   [Dec-16-16 12:56PM  at Insider Monkey]
▶ 5 Capital Goods Stocks Hedge Funds Were Dumping in Q3   [Dec-03-16 07:43PM  at Insider Monkey]
Stock chart of TMO Financial statements 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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