Thermo Fisher Scientific (TMO)

Total return at 5 years: -1.4%/year = -1.8% appreciation + 0.4% dividend. The target price ($606) is ex-dividend; the $12 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $574 · Multiples $497) is below the market price ($662).

Today — expensive, no margin of safety: at $662 trades ~33.3% above its value discounted to today (~$497); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$309.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($662) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (7.8%/year) above our base case (5.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$13.2 bn of owner earnings in year 5 (vs ~$11.6 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on NOPAT (ingreso operativo ajustado después de impuestos). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

The model values on the adjusted operating income the company itself reconciles in the 10-K ($10,109 million in 2025, a 22.7% margin, against $7,746 million and 17.4% on the accounting measure): the difference is almost entirely amortization of acquisition intangibles ($1,730 million in 2025), a charge with no cash outflow whose price is already in invested capital. For consistency, the tax rate is the adjusted rate the company guides for 2026 (11.5%) and the model's depreciation line is only property, plant and equipment depreciation ($1,050 million), without adding back the amortization already excluded from operating income. Cash stays stable: the surplus retained after dividends and buybacks is redeployed into bolt-on acquisitions, which fund the point of inorganic growth already included in the revenue path. Buybacks are modeled explicitly in the share path, anchored to the historical net reduction (from 394 to 372 million shares between 2022 and the TTM).

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $606 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $662, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $606 in 5 years plus $12 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $497. Against the current market price ($662), the margin of safety is -33.3% (trades above the maximum → a premium is paid) and the total return at that price would be -1.4% annually.

• Entry multiple. Purchased at 31× on adjusted operating income after taxes, the price of an excellent franchise.
• Multiple compression. Entry cheapens to 23× by year five, but the 20.5× exit absorbs nearly all of growth.
• Estimated total return. -1% annually over five years, appreciation plus dividends, against $662 price.
• Dividend yield. 0.3%: the policy prioritizes buyback and acquisitions, so dividends contribute little to return.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (93%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital versus the 10% bar. Level of 9.9% falls below, with the nuance of the serial acquirer: the denominator carries the price of acquisitions.
• Adjusted operating margin. 22.7% in 2025 versus 22.6% in 2024: stability through an adverse demand cycle.
• Cash generation. Free cash flow of around $7.3 billion in the TTM, with consistent conversion relative to earnings. CFROIC (~9.2%) sits just below ROIC (~9.9%): growth capital expenditure (capacity expansion) and normal working capital absorb a modest portion of the book return, without indicating earnings unsupported by cash.
• Stock-based compensation. $318 million in the TTM: 0.7% of revenue and 4.7% of free cash flow, without material metric distortion.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The filing does not report itemized unit indicators—instrument count, tests, or customers—; it attributes growth to product lines and market channels. The available operating indicator is revenue by segment, which shows where the engine is: laboratory and pharmaceutical services are half the business and grow at mid-single-digit, Life Sciences Solutions is the most dynamic line for bioproduction and genetic sciences, and analytical instruments is the cyclical piece, with 1.2% growth and segment results down 11% in 2025. Figures are pre-elimination of inter-segment sales.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (27-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Recent trajectory. From −4.6% in 2023 to +5.4% in the TTM: clear recovery from customer inventory reduction.
• Organic growth. The +3.9% in 2025 was +2% organic, one point from acquisitions, and one point from currency conversion.
• Acquisition dependence. Inorganic growth is a structural part of the model and consumes the cash excess of each year.
• Analytical instruments. Rose 1.2% in 2025 and segment results fell 11%: the cyclical piece remains unrecovered.

• Recurring revenue from consumables and services. Reagents, consumables, and services sustain the majority of revenue; instruments are the cyclical portion.
• Portfolio breadth. Four segments span from reagents to commercial pharmaceutical manufacturing under one supplier.
• Customer diversification. Pharmaceutical, biotech, clinical diagnostics, academia, government, and industry, with no declared customer dependence.
• Public budget exposure. Filing cites the October 2025 federal government shutdown and risk of federal spending delays or reductions.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✕Leverage (net debt / EBITDA)Net debt / EBITDA 3.4x
• !Interest coverage (EBIT / interest)7.2x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 93% of ROIC
• ✕Value creation (ROIC − 10% bar)-0pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.4x
• !Float / working capitalConsumes cash $0.7 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.7% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net debt. $38,485 million net of cash and short-term investments, approximately five times annual free cash flow.
• Interest coverage. TTM operating results comfortably cover interest expense of $1,419 million.
• Contractual commitments. Minimum net interest coverage of 3.5 to 1.0, with cross-default clauses across instruments.
• Liquidity. $4,064 million in cash and short-term investments plus a revolving line of up to $5,000 million.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Continuity. More than fifteen years of the same chief executive at the helm and more than two decades with the company: capital allocation track record is attributable and verifiable.
• Capital allocation. Growth supported by acquisitions, with $49,360 million in accumulated goodwill: return on total capital falls below the 10% bar.
• Return to shareholder. Buyback of $3,000 million in 2025 and $5,000 million in the TTM, plus a dividend that rose from $1.20 to $1.88 per share since 2022.

• Bottom of cycle in spending: contraction in pharmaceutical industry spending and customer inventory reduction drove growth to −4.6% in 2023 and zero in 2024, and the market still does not credit the recovery.
• Uncertainty in U.S. public research budgets, with the October 2025 federal government shutdown cited in the filing itself.
• Exposure to China, tariffs, and export controls, which adds volatility to a historically predictable business.

The price discount does not suffice: even with those three identified pressure sources, the entry multiple remains that of an excellent franchise and leaves no cushion against estimated value.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -10%/year (-41% total): the margin of safety protects the downside. The bull (+3%/year, +14% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Scientific spending cycle. Demand depends on pharmaceutical research spending, academia, and government sector budget constraints.
• Tariffs and China. Tariffs and countermeasures, export controls, and Chinese regulations requiring local suppliers.
• Goodwill deterioration. $49,360 million in goodwill and $15,830 million in intangibles exposed to impairment if acquisitions underperform.
• Regulatory quality. Quality control failure can force batch destruction or plant shutdown, with sanctions and customer litigation.
• Demanding price. Entry multiple leaves little margin if organic growth disappoints.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC barely matches the 10% bar (the market's opportunity cost), no excess return.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a multiple/growth of 6.1 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 4% (EBIT/EV) + ROIC 10% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 8% vs our 5%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -11%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: switching costs, efficient scale, intangibles, cost advantage → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 8% vs our 5%: coherent, but at the optimistic end of the range.