Thermo Fisher Prices Senior Notes - Analyst Blog

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Thermo Fisher Scientific ( TMO ) has priced its senior notes, that will be used primarily to fund the recently announced acquisition of One Lambda (in July), for an aggregate purchase price of $925 million. The company is issuing the notes in two installments - $500 million of 1.850% senior notes due 2018 (at an issue price of 99.985% of the principal amount) and $800 million of 3.150% senior notes due 2023 (at an issue price of 99.475% of the principal amount).  The issuance of the notes, that will close on August 22, 2012, will pay semi-annual interest.

Besides the acquisition, the company had announced an additional $500 million of stock repurchase authorization, through December 2012. With $250 remaining at the end of the second quarter and an incremental buyback authorization of $500 million, the company is left with $750 million of authorization through the year end. We believe that the raised funds will also be used to finance the repurchase program.

Thermo Fisher exited the second quarter of 2012 with $732.3 million in cash and cash equivalents compared with $1,016.3 million at the end of fiscal 2011. Year-to-date cash flow from continuing operations stood at $909 million with free cash flow of $782 million (net capital expenditures being $127 million).

The company repurchased 2 million shares for $100 million during the quarter taking the share buyback to $400 million in the first half of the fiscal year. As a result of this continuous buyback program, the outstanding share count at the end of the reported quarter stood at 369.2 million, down 4.3% from the year-ago period, which in turn boosted EPS. Earlier this year, the company had initiated a quarterly dividend of 13 cents per share.

The decision to acquire One Lambda comes within one year of the Phadia acquisition (for €2.47 billion) in August 2011, which strengthened Thermo Fisher's Specialty Diagnostics business. To finance this deal, the company had issued $2.1 billion of senior notes last year. Thermo Fisher's past acquisitions have added complementary technologies, expanded its presence in high-growth markets, and generated cost and revenue synergies, thereby creating shareholders' value.

Although the debt burden has been increasing along with an increase in the company's acquisitions, we believe that its financial position is strong enough owing to the steady top-line growth and strong cash flow.

Thermo Fisher reported a strong second quarter with both adjusted EPS and revenues sailing past the Zacks Consensus Estimates. However, the company has faced the brunt of weak government and academic markets. We expect the company to be under pressure as many countries in Europe, grappling with debt burden, would look to trim their budgets.  Moreover, it is exposed to fluctuations in foreign exchange and a tough competitive landscape with the presence of players such as Life Technologies ( LIFE ) among others.

We have a Neutral recommendation on Thermo Fisher. The stock retains a Zacks# 3 Rank ('Hold') in the short term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: LIFE , TMO

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