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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