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Healthcare Stock Resilience: Why Thermo Fisher Scientific Could Thrive Amid RFK Jr. Concerns

This Healthcare Stock Might Just Be RFK Jr. Proof

Concerns in the Healthcare Sector

Healthcare stocks have encountered turbulence since the election due to concerns surrounding Robert F. Kennedy Jr. (RFK Jr.), who is being considered for President Trump’s Health and Human Services secretary. His history of skeptical comments regarding vaccines has raised alarms about potential slowdowns in drug development within the life-sciences industry. Furthermore, RFK Jr.’s criticisms of the Food and Drug Administration (FDA) have incited fears that the approval process for new medications may face significant delays, particularly if major staff reductions occur within the agency.

Reflecting these uncertainties, the Health Care Select Sector SPDR exchange-traded fund (XLV) has dropped about 4% since Election Day, in stark contrast to the more than 5% gain for the S&P 500 index. However, not every company in the healthcare sector is feeling the heat from these changes; notably, Thermo Fisher Scientific has managed to stay resilient amidst the chaos.

Thermo Fisher’s Stability

Thermo Fisher Scientific, a renowned giant in the medical instruments and equipment sector, manufacturers essential items for pharmaceutical development such as fluorescent dyes, cell counters, beakers, test tubes, and electron microscopes. Since early November, its stock has risen approximately 3%, reaching $574.59, and has surged nearly 11% in January alone. This upward trend can be attributed to the belief that while RFK Jr. may disrupt certain aspects of the pharmaceutical industry, he is unlikely to halt research altogether.

Portfolio manager Shams Afzal from Carnegie Investment Counsel, a holder of Thermo Fisher stock, expressed optimism about the medtech sector, asserting that stable funding exists within biotechnology. The overarching need for healthcare companies to innovate and develop new blockbuster drugs becomes crucial, especially as cash flows from Covid-19 vaccines and treatments begin to taper off and patent expirations loom.

A Diversified Business Model

Thermo Fisher’s business model mitigates potential adverse effects from RFK Jr.’s policies. As pointed out by portfolio manager Shivani Vohra at Parnassus Investments, which also holds Thermo Fisher stock, the company only derives a small percentage of its revenues from National Institutes of Health (NIH) funding, further shielding itself from the volatility of political changes. Vohra emphasized that Thermo Fisher is a “diversified life-sciences tool company” which acts as a “one-stop shop,” benefiting from strong secular trends surrounding innovation.

During the J.P. Morgan Healthcare Conference in January, CEO Marc Casper conveyed a positive outlook, indicating “there’s quite a bit of enthusiasm” among its pharma and biotech clients despite impending uncertainties regarding tariffs and regulatory changes from the Health and Human Services department. Casper reiterated this point at the Wolfe Research Healthcare Conference in November, downplaying the impact of potential tariffs on China, given that Thermo Fisher generates only about 8% of its revenue from the region.

Looking Ahead: Earnings and Analyst Insights

As investors gauge the sustainability of this optimism, all eyes are on Thermo Fisher’s forthcoming fourth-quarter results on January 30, 2024, which may include updates on the company’s outlook for 2025. Analysts are anticipating an earnings increase of 5% year-over-year, with forecasts suggesting a resurgence in growth after post-Covid declines. This projection hints at growth rates of 7% for this year and even higher at 11% by 2026.

With its stock valued at approximately 25 times forecast earnings for 2025, Thermo Fisher trades in alignment with its historical averages, and at a discount compared to its rivals such as Danaher, Mettler-Toledo International, and Bio-Techne, which are currently trading in the high 20s to low-to-mid 30s multiples. Wall Street sentiment leans favorably towards Thermo Fisher, with 27 analysts recommending “Buy” in contrast to just five suggesting “Hold.” The consensus price target stands around $650, suggesting an increase of approximately 12% from current levels.

A Bright Future Amidst Uncertainty

While investors in companies like Pfizer and Moderna may find themselves anxious regarding the implications of Trump 2.0 and RFK Jr., Thermo Fisher appears poised for a healthy year ahead. With its diversified portfolio and robust market positioning, the company may just weather the storm, defying the overarching fears associated with potential changes in leadership at the Health and Human Services department. As the healthcare sector navigates through these uncertainties, Thermo Fisher stands out as a beacon of stability and growth potential.