Life sciences giants Thermo Fisher Scientific and Danaher could be on the verge of a growth revival, according to a new note from UBS. The investment bank expects both companies to return to mid-single-digit organic revenue growth next year, driven by a stabilizing bioprocessing market and a more predictable China.
For everyday investors, this is a signal that two of the sector's biggest names may have weathered the worst of a post-pandemic slowdown. But what exactly does "organic revenue growth" mean, and why does it matter? Let's break it down.
What's behind the optimism?
Thermo Fisher and Danaher are often described as the "picks and shovels" of the life sciences industry. They sell the instruments, consumables, and software that pharmaceutical companies, biotech startups, and academic labs rely on for research and production. When drugmakers are busy developing new therapies, these companies thrive. When spending slows, they feel it quickly.
The past year has been bumpy. During the pandemic, there was a surge in demand for bioprocessing equipment and consumables—the tools used to manufacture biologic drugs like vaccines and antibody therapies. That boom faded as the world moved on, leaving excess capacity and softer orders. At the same time, demand from China, a major market for these companies, has been uneven due to economic headwinds and policy shifts.
UBS analyst Douglas Schenkel believes the tide is turning. He expects Thermo Fisher to "durably return" to 5%-6% organic revenue growth next year. Organic growth excludes the effects of acquisitions and currency fluctuations, so it reflects the underlying health of the core business. The forecast is based on steadier bioprocessing orders, improving funding conditions for biotech customers, and a stabilizing Chinese market.
Danaher, which also has a large bioprocessing arm through its Cytiva subsidiary, is expected to follow a similar trajectory. The company has been a favorite among investors for its consistent execution, but it too has faced headwinds from the same factors.
Why this matters for your portfolio
For investors, the return to mid-single-digit growth is significant. These companies are not high-flying tech startups; they are established, profitable businesses that generate steady cash flows. Their stock prices often trade at a premium because investors expect reliable, compounding growth. When that growth stalls, as it did over the past year, shares can suffer.
If UBS is right, the next year could bring a more favorable environment for these stocks. Steadier growth could support valuations and potentially lead to earnings upgrades. But it's important to remember that forecasts are just that—forecasts. The life sciences sector is sensitive to broader economic conditions, interest rates, and regulatory changes.
One key factor to watch is biotech funding. Many of Thermo Fisher and Danaher's customers are small biotech firms that rely on venture capital and public markets to finance their research. When funding is tight, they delay equipment purchases. UBS notes that funding conditions are improving, which could translate into more orders down the line.
China is another wildcard. The country is a major growth engine for these companies, but it has also been a source of uncertainty due to trade tensions and local competition. A stabilization in China would remove a significant drag on revenue.
What to watch next
Investors should keep an eye on quarterly earnings reports from both companies. Management commentary on order trends, especially in bioprocessing, will be a key indicator of whether the recovery is on track. Also watch for any updates on China's demand, as well as broader signals from the biotech funding environment.
It's also worth noting that these companies are often seen as bellwethers for the life sciences sector. If they are recovering, it could bode well for other suppliers and service providers in the industry. For context, other companies have shown similar resilience, such as Kingspan's growth engine in building materials, but the dynamics are different.
In the meantime, investors should remember that mid-single-digit growth is not explosive. It's a return to normalcy, not a boom. For long-term investors, that might be exactly what they want: steady, predictable progress from companies that are essential to the healthcare ecosystem.
As always, it's wise to diversify and not put all your eggs in one basket. The life sciences sector has strong fundamentals, but it's not immune to shocks. Keep an eye on the broader market and economic indicators, such as Japan's revised growth or UK retail sales, which can influence global sentiment.
For now, the UBS note offers a ray of hope for investors who have been waiting for these giants to find their groove again. Whether that hope turns into reality will depend on execution, market conditions, and a little bit of luck.
