Thermo Fisher vs. Exact Sciences: Which Diagnostics & Research Stock is a Better Buy?

Thermo Fisher Scientific Inc. (TMO) in Waltham, Mass., and Exact Sciences Corporation (EXAS) in Madison, Wisc., are two prominent players in the diagnostics and research industry. TMO offers life sciences solutions, analytical instruments, specialty diagnostics, and laboratory products and services worldwide. The company serves pharmaceutical and biotech companies, hospitals and clinical diagnostic labs, universities, research institutions, and government agencies. In comparison, EXAS provides cancer screening and diagnostic test products internationally. It offers Cologuard, a non-invasive stool-based DNA screening test, to detect DNA and hemoglobin biomarkers associated with colorectal cancer, pre-cancer, and Oncotype DX, and also focuses on developing blood and other fluid-based tests.

Early prediction and further analysis of acute diseases using diagnostics devices, the integration of new technologies, and research breakthroughs have enabled the diagnostics and research industry to grow significantly over the past few years. The heightened need for advanced diagnostics and research services in identifying chronic and infectious diseases should keep driving the industry’s growth. The global point of care diagnostics market size is expected to grow at an 11.4% CAGR to  $50.60 billion by 2025. So, both TMO and EXAS are expected to benefit.

But while EXAS shares have lost 27.8% in price year-to-date, TMO has surged 30%. TMO is a clear winner with 30.2% gains versus EXAS’ negative returns in terms of their past year’s performance. But which of these stocks is a better pick now? Let’s find out.

Click here to checkout our Healthcare Sector Report for 2021

Latest Developments

On October 18, 2021, TMO received Emergency Use Authorization (EAU) from the U.S. Food and Drug Administration (FDA) to run COVID-19 tests from only two millimeters of saliva samples collected with the Spectrum Solutions SpectrumDNA SDNA-1000 collection device on the Amplitude Solution. With the capacity to process up to 8,000 samples per day, these devices provide sample consistency and long-term stability, while protecting DNA and RNA transcripts post-collection to help ensure accurate test results. TMO expects to see high demand for this device from labs and public health officials in the future.

On September 14, 2021, EXAS entered a collaboration agreement with the National Cancer Institute’s (NCI) National Surgical Adjuvant Breast and Bowel Project (NSABP) group to conduct a prospective, multicenter validation study with stage II and III colorectal cancer (CRC) patients, demonstrating the ability of EXAS’ ctDNA test to detect MRD. This collaboration is part of EXAS’ global initiative to generate clinical validation data for its tumor-informed MRD liquid biopsy test.

Recent Financial Results

TMO’s revenues for its fiscal second quarter, ended July 3, 2021, increased 34.1% year-over-year to $9.27 billion. The company’s adjusted operating income came in at $2.69 billion, up 44.3% from the prior-year period. While its adjusted net income increased 43.2% year-over-year to $2.22 billion, its adjusted EPS increased 44% to $5.60. As of July 3, 2021, the company had $7.02 billion in cash and cash equivalents.

For its fiscal second quarter, ended June 30, 2021, EXAS’ revenue increased 61.7% year-over-year to $434.82 million. The company’s non-GAAP gross profit came in at $320.85 million, representing a 68% rise from the year-ago period. However, its loss from operations was $171.66 million, up 156.2% from the prior-year period. EXAS’ net loss came in at $176.91 million, representing a 159.8% rise from the year-ago period. Its loss per share increased 128.9% year-over-year to $1.03. The company had $363.72 million in cash and cash equivalents as of June 30, 2021.

Past and Expected Financial Performance

TMO’s revenue and total assets have grown at CAGRs of 18.3% and 6.9%, respectively, over the past three years. Analysts expect TMO’s EPS to increase 13.5% year-over-year in the current year and decline 4.1% next year. Its revenue is expected to grow 12% in the current year and 12.1% next year. The stock’s EPS is expected to grow at a 12% rate per annum over the next five years.

In comparison, EXAS’ revenue and total assets have increased at CAGRs of 69.2% and 65.5%, respectively, over the past three years. Analysts expect EXAS’ EPS to remain negative in the coming quarters of the current year and next year. Its revenue is expected to increase 16% year-over-year in the current year and 21% next year. Analysts expect the stock’s EPS to grow at a 98.5% rate per annum over the next five years.

Valuation

In terms of non-GAAP P/E, TMO is currently trading at 27.39x, compared to EXAS’ negative 39.22x. In terms of forward EV/Sales, TMO’s 6.78x compares with EXAS’ 10.22x.

Profitability

TMO’s trailing-12-month revenue is almost 22.4 times higher than EXAS’. TMO is also more profitable, with a 34.8% EBITDA margin versus EXAS’ negative value.

Also, TMO’s ROE, ROA and ROTC values of 25.8%, 10.5%, and 12.7%, respectively, compare favorably with EXAS’ negative values.

POWR Ratings

While EXAS has an overall D grade, which translates to Sell in our proprietary POWR Ratings system, TMO has an overall B grade, equating to Buy. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

Both TMO and EXAS have C grades for Value, which is consistent with higher-than-industry valuation ratios. TMO has a 7.10x forward Price/Book, which is 62.9% higher than the 4.36x industry average. EXAS’ 7.40x forward Price/Book is 69.7% higher than the 4.36x industry average.

TMO has a B grade for Sentiment, which is consistent with favorable analyst estimates. Analysts expect TMO’s EPS to grow 13.5% year-over-year in the current year to $22.19. However, EXAS’ D grade for Sentiment is in sync with analysts’ expectation that its EPS will remain negative for the current quarter.

Of the 58 stocks in the Medical - Diagnostics/Research industry, EXAS is ranked #39, while TMO is ranked #16.

Beyond what we’ve stated above, our POWR Ratings system has also rated EXAS and TMO for Growth, Stability, Quality, and Sentiment.

Get all EXAS ratings here. Also, click here to see the additional POWR Ratings for TMO.

The Winner

Impressive breakthroughs and the heightened demand for advanced diagnostics and research devices and solutions should help the industry grow. Therefore, both TMO and EXAS should benefit. However, we think its higher profitability makes TMO a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Medical - Diagnostics/Research industry.

Click here to checkout our Healthcare Sector Report for 2021

TMO shares were trading at $610.82 per share on Friday afternoon, up $2.41 (+0.40%). Year-to-date, TMO has gained 31.35%, versus a 22.41% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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