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Thermo Fisher Delivers Alpha for Robbins and Cooperman

Glenview’s Larry Robbins and Omega Advisors’ Leon Cooperman both touted life sciences stalwart Thermo Fisher Scientific at the recent Delivering Alpha conference.

Just as innovation drives success, so does success drive investment.

Earlier this month Thermo Fisher Scientific, the leading biotech product developer, was recognized for its ingenuity by receiving three 2014 R&D 100 Awards, the coveted technology prizes known to many as the “Oscars of Innovation.” Among its winning products are the Thermo Scientific Delta Ray, a spectrometer used for continuous carbon dioxide monitoring, and the RIIDEye X, a handheld device that detects and measures radioactive isotopes and dose rates, which could be used by first responders.

The awards reflect the broader success the company has achieved, as evidenced by its strong second-quarter financial results yesterday. Thermo Fisher’s earnings per share rose 30 percent to $1.72 — 40 cents higher than the same quarter a year ago — powered by its recent acquisition of Life Technologies Corp. Revenues for the Waltham, Massachusetts–based Thermo Fisher were up by a third, topping $4.3 billion, whereas adjusted operating margins grew 210 basis points to 21.4 percent.

Glenview Capital Management founder and CEO Larry Robbins sang Thermo Fisher’s praises at last week’s Delivering Alpha investment conference in New York, acknowledging that his firm has been invested in it or its predecessor companies for a decade. The hedge fund manager even invoked his inner rapper to expound on his feelings for the equity, paraphrasing Brooklyn’s Jay Z: “I worry about 99 percent of holdings in the portfolio, but Thermo ain’t one,” he chimed. Moments earlier, Robbins’s former boss, Leon Cooperman of Omega Advisors, had included the stock in the basket of 12 he packaged for his fourth consecutive appearance at Delivering Alpha.

Robbins believes that Thermo Fisher has deployed its capital skillfully under the leadership of CEO Marc Casper, including the company’s $13.6 billion acquisition of Carlsbad, California–based Life Technologies. “What people aren’t paying attention to is that good businesses delever through their free cash flow and ebitda growth, so that by this time one year later, they’ll be in a position to then go shopping and do it again, ” he said.

Ross Muken, who covers the life science tools and diagnostics sector for research and brokerage firm ISI Group, agrees with Cooperman and Robbins that Thermo Fisher has a blueprint for success. “It’s a business that’s been in transformation for nearly ten years, via M&A,” says the New York–based analyst, referring to the 2006 merger of Thermo Electron and Fisher Scientific, which created the company’s footing for the future. “And they’ve now established themselves as clearly a leader in the life science instrumentation and consumables space.”

Following the company’s most recent acquisition, which was completed in February, Thermo Fisher now has four key brands: Thermo Scientific, Life Technologies, Fisher Scientific and Unity Lab Services. Life Technologies deepened the company’s product offering, providing tools for such things as cell culturing and transfection and cancer genome data analysis. Thermo Fisher reaches a vast consumer base, from pharmaceutical companies to hospitals and diagnostic labs, with such mainstay products as the Vanquish ultra-high-performance liquid chromatography system.

“They’re basically the key providers of productivity tools to most end markets,” Muken adds. “So they’re really levered to R&D growth, which has been stable in bad and good cycles for the better part of 50 years.”

The company’s technologies reach a wide spectrum of customers. In June the FBI cleared Life Technologies’ GlobalFiler Kit for use in forensic labs for quick, reliable DNA testing and uploading to the Combined DNA Index System (CODIS) database, which can greatly aid the criminal justice community. Also last month, Thermo Scientific released a bevy of new products at the ASMS Conference on Mass Spectrometry and Allied Topics.

Despite the 40 percent rise in the share price of Thermo Fisher, Muken says the company is undervalued by many market participants, who question its ability to integrate its new businesses. Still, he unabashedly calls Thermo Fisher “one of the world’s greatest businesses.” It is facing several years of growth in its operating margins and consolidated opportunities across its businesses, he adds, with its R&D in genetics, sequencing and industrials providing a distinct advantage over the competition.

Muken sees similarities between Thermo Fisher and General Electric Co., which has long exemplified the innovative American company. “The ultimate ability for this company is to be the GE flag-bearer for the life sciences,“ he says.

Follow Ben Baris on Twitter at @bbaris8.

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