Thermo Fisher Scientific, Inc. (NYSE:TMO) is having a good year, with shares surging by over 11% so far. The stock’s outperformance has come as the life-sciences tools market shows signs of recovery. But after the rally, the more important question is whether Thermo Fisher’s earnings growth can justify what investors are now paying for the stock. But before we dive into the stock’s investment story, take a look at our list of the 10 best healthcare stocks to buy according to hedge funds, which ranks nine more solid investments other than TMO.
Is 26 Times Earnings Justified?
Thermo Fisher Scientific, Inc. (NYSE:TMO) raised its 2026 adjusted EPS guidance to $24.93–$25.33 following its second-quarter results, up from its previous range of $24.64–$25.12. Using the midpoint of the updated guidance, the stock trades at approximately 26.1 times expected 2026 adjusted earnings. Another healthcare giant with defensive qualities is also on investors’ radars with a forward P/E of 17x and has returned over 20% this year so far. Check here.
That is not a bargain valuation, as investors are paying more than 26 times earnings for a company whose organic revenue growth was only 5% in the second quarter. However, the multiple looks more reasonable when earnings growth is considered. Thermo Fisher’s adjusted EPS increased 13% in the quarter, meaning earnings are currently growing faster than revenue as margins improve. The valuation therefore depends on whether the recent recovery can continue rather than simply whether the company can maintain its current size. For more insight into how TMO compares to other popular stock picks in the sector, take a look at our recently published article on Gilead vs. Thermo Fisher: Which Life Sciences Stock has the Stronger Growth Outlook?
Customer Demand Is Starting to Improve
Thermo Fisher’s second-quarter revenue increased 10% to $11.99 billion, while organic revenue grew 5%. Adjusted EPS increased 13% to $6.03, and adjusted operating margin expanded to 22.8% from 21.9% a year earlier.
The improvement was broad enough to strengthen the valuation argument. Life Sciences Solutions revenue increased to $2.82 billion, Analytical Instruments reached $1.85 billion, Specialty Diagnostics generated $1.21 billion, and Laboratory Products and Biopharma Services produced $6.69 billion.
The company is also investing in products that could support longer-term growth. During the quarter, Thermo Fisher introduced new Orbitrap mass spectrometers with AI-driven analytics and a next-generation PCR system. It also opened a U.S. Bioprocess Design Center aimed at helping pharmaceutical and biotechnology customers accelerate drug development and manufacturing. Before making an investment decision, don’t miss out on our article on Pfizer vs. Thermo Fisher: Which Healthcare Turnaround has More Upside? to get more comparative insight into the sector and make an informed decision.
The Recovery Still Has Some Weak Spots
The biggest concern is that Thermo Fisher’s 10% reported revenue growth was only 5% organically, and acquisitions and currency therefore accounted for part of the headline increase. That is crucial in judging whether the company’s underlying business is strong enough to support a premium valuation.
Customer spending also remains an important variable to the company’s investment story, as Thermo Fisher itself identifies customers’ capital-spending policies and government funding as risks to its business. That makes the recovery more dependent on the durability of research and biopharma spending than the headline revenue number suggests.
Does the Valuation Make Sense?
At roughly 26.1 times expected 2026 adjusted earnings, Thermo Fisher Scientific, Inc. (NYSE:TMO) is clearly not priced like a struggling life-sciences supplier. The premium reflects a business that is gaining customers, expanding margins, and producing double-digit adjusted EPS growth.
The stock’s 20.5% gain also means investors have already recognized part of that recovery. For the current valuation to continue looking reasonable, Thermo Fisher will likely need to sustain improving organic growth rather than rely heavily on acquisitions and favorable currency effects.
For now, the valuation looks defensible but not cheap. If the recovery in customer activity broadens and organic growth moves higher, the current multiple could prove reasonable. If organic growth remains stuck around 5%, however, investors may eventually question whether 26 times earnings is too much to pay for a business growing at a much slower pace.
While we acknowledge the risk and potential of TMO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TMO and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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This article is originally published at Insider Monkey.
