Thermo Fisher Scientific stock has delivered a 20.7% gain over the past year, and the latest checks suggest it now sits close to its estimated intrinsic value rather than looking clearly cheap or clearly expensive.

• Thermo Fisher Scientific is up 20.7% over the past 12 months, which puts more focus on whether current buyers are paying a fair price for the cash flows that the business may generate.
• The recent sale of the microbiology business and ongoing work in proteomics and precision medicine can support long term cash generation, although execution risk around portfolio changes and research driven projects may weigh on how much investors are willing to pay today.
• The Discounted Cash Flow (DCF) estimate suggests the stock is roughly fairly valued with only modest upside of about 7.6%, while the broader checks give a mixed value score of 3 out of 6, so this is not a straightforward bargain.

The stock's next move may depend on whether the current price already reflects a fair share of Thermo Fisher Scientific's long term cash flow potential or still leaves room for further upside.

Where Does Thermo Fisher Scientific Sit on Cash Flow?

The Discounted Cash Flow (DCF) model estimates what Thermo Fisher Scientific’s future cash generation is worth in today’s dollars. On the latest figures, the company produced last twelve month free cash flow of about $7.4b, and the model assumes these cash flows continue growing rather than shrinking. On that basis, the 2 Stage Free Cash Flow to Equity approach points to an intrinsic value of about $636 per share in $.

Compared with the current share price, this implies Thermo Fisher Scientific appears only modestly undervalued by roughly 7.6%, so the current market price already reflects much of the projected cash flow profile. The recent $1.1b sale of the microbiology business helps explain why the stock may trade close to intrinsic value, because it tightens the portfolio around areas like proteomics and precision medicine that the market already follows closely.

Overall, the Discounted Cash Flow (DCF) work suggests Thermo Fisher Scientific stock looks about fairly valued at today’s price.

Thermo Fisher Scientific is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Is Thermo Fisher Scientific Getting Expensive on Earnings?

The P/E ratio suits Thermo Fisher Scientific because earnings remain a key anchor for how investors look at large, established life sciences companies. Right now, Thermo Fisher Scientific trades on a P/E of about 31.2x, which is very close to the peer average of 31.3x and below the broader Life Sciences industry average of roughly 36.8x. That indicates the stock is not priced at a large premium to peers, even though the sector in general trades on relatively full earnings multiples.

However, the tailored fair P/E ratio for Thermo Fisher Scientific, which blends factors such as its margins, size and risk profile, is lower at about 28.3x. Compared with the current 31.2x, this indicates investors are paying a richer price than this framework would imply, even after the portfolio reshaping around areas such as proteomics and precision medicine. On this view, the stock appears above what might be considered a more neutral earnings multiple.

Based on the P/E multiple alone, Thermo Fisher Scientific stock appears expensive relative to the fair earnings ratio implied by its fundamentals.

The Thermo Fisher Scientific Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where this Thermo Fisher Scientific valuation puzzle leaves off. They explain the combination of future growth, margins and earnings that would need to occur for Thermo Fisher Scientific's stock to be worth materially more or less than it is today. Each Narrative sets out the assumptions behind its fair value so you can compare those assumptions with actual results as they are reported. Narratives are available on Simply Wall St's Community page for Thermo Fisher Scientific.

If you have a number driven view on whether Thermo Fisher Scientific's sale of its microbiology business and its work in proteomics and precision medicine support today's price, this is a chance to add your voice in the Simply Wall St community.

Share a Narrative that sets out your assumptions on Thermo Fisher Scientific's cash flows, margins and execution, then see how your thesis holds up as new results and updates come through.

Do you think there's more to the story for Thermo Fisher Scientific? Head over to our Community to see what others are saying!

The Bottom Line

For Thermo Fisher Scientific, the Discounted Cash Flow (DCF) work points to only a modest gap between intrinsic value and the current share price, so the stock no longer screens as obviously cheap. The P/E view looks less forgiving and suggests the shares trade on an overvalued multiple relative to a tailored fair ratio. That split mainly comes down to how much investors are willing to pay today for future cash flow and growth in areas like proteomics and precision medicine. The key question from here is whether execution on the reshaped portfolio justifies keeping that richer multiple in place.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.