‘Too Cheap to Ignore': Scotiabank Says There's an Opportunity Brewing in These 2 Large Cap Healthcare Stocks

Yahoo

19-07-2025

President Donald Trump's new second term is young, but some of its patterns are already clear. The President has no interest in keeping the government's sacred cows intact, and large swaths of Federal spending are on the chopping block.
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Healthcare funding, long a third rail in politics, is among those endangered sectors. The Trump Administration has already cut back on funding for various academic research institutions and government agencies. Uncertainty around trade and tariff policy, and the economic forecast, is also putting a crimp on private sector funding.
Yet, despite the tightening purse strings and rising volatility, some market watchers believe the current environment is creating compelling entry points – particularly in the life science tools sector. One of them is Scotiabank analyst Sung Ji Nam, who sees an opportunity emerging amid the broader pullback.
'With LST-13 [large cap life science tools companies] now trading near the 10-year trough on a forward P/E basis we believe the worst-case outlook for the group has been largely factored into valuations… We think longer-term fundamentals are mostly unchanged for the group, and we expect growth acceleration into 2026 and beyond. As such, we expect further upside for the group as a whole over the next twelve months,' Ji Nam opined.
Ji Nam isn't just making a broad call on the sector – she's zeroed in on two top stock picks she believes are primed for upside. And she's not alone in that view. According to the TipRanks database, both stocks carry Strong Buy consensus ratings from Wall Street analysts.
Danaher Corporation (DHR)
The first stock we'll look at here, Danaher Corporation, deals with the applications of science and technology to human health, providing biotech, diagnostic, and life sciences services to customers in the medical and biosciences fields. The firm fits squarely in Scotiabank's preference for large-cap life science tool companies, with a market cap of $138 billion – and a record of recent underperformance, with a share price decline of 20% over the past 12 months.
The company's business is divided into three divisions. The first, biotechnology, provides the technologies and services – and the expertise behind them – to customers working on new medications and other healthcare advancements. Danaher's biotechnology work makes it possible for therapeutic developers to more rapidly commercialize their products, for fast and safe delivery to patients.
Danaher's second division, diagnostics, focuses on creating the supporting tools, both hardware and software, that will back up medical investigations for faster and more precise diagnoses. This is an urgent need in the healthcare industry, and Danaher's approach is designed to engender increased confidence.
Life sciences make up Danaher's third business division. This encompasses a wide range of vital activities in the field, from the latest cell and gene therapies to high-quality lab techniques like fluid filtration, to the latest advanced techniques in molecular oncology. Danaher provides tools and tech that will support life sciences researchers as they work to improve overall human health through new innovations.
All of this is big business, and Danaher's last earnings release, which covered 1Q25, showed a top line of $5.74 billion. This was down 1% from the prior-year period, but it was $150 million better than had been expected. At the bottom line, the company realized a non-GAAP EPS of $1.88, 4 cents lower than in 1Q24, but beating the forecast by 24 cents per share. Danaher maintained a strong free cash flow in the quarter of just over $1 billion.
For Scotiabank's Sung Ji Nam, the key point here is this company's strong position in an important business niche. She writes, 'From an end-market standpoint, DHR is more favorably positioned this year and next year given its exposure predominantly to later-stage development/bioprocessing spending for pharma/biotech, as well as diagnostics, and low single digit exposure to U.S. A&G. Following 1Q25, DHR largely maintained its 2025 guidance, and barring significant, unforeseen deteriorations across the pharma/biotech and diagnostics end markets, we believe DHR is on track to accelerate its growth profile over the next 12–18 months (to reach its LRP of high single digit top line CAGR, low to mid-30% adjusted operating margins and double-digit EPS CAGR).'
'Furthermore,' the analyst added, 'we are bullish about DHR's significantly transformed business model, achieved over the last several years (higher top line growth potential, margins and FCF conversion), better alignment and focus on meaningfully faster growing end-markets, as well as its operational execution capabilities leveraging the Danaher Business System and capital deployment capacity.'
Taken all together, this adds up to a Sector Outperform (Buy) rating from Nam, along with a $275 price target that points toward a one-year upside potential of 41%. (To watch Nam's track record, click here)
The Strong Buy analyst consensus on DHR stock is based on 16 recent analyst reviews that show a lopsided split of 15 to 1 favoring Buy over Hold. The stock's $194.79 trading price and $240.93 average target price together imply that the shares will gain 24% by this time next year. (See DHR stock forecast)
Thermo Fisher Scientific (TMO)
Next up is a stock in the medtech sector, Thermo Fisher Scientific. This medical technology firm specializes in producing supplies and equipment for medical and other research laboratories. The rapid expansion of the healthcare industry in the past two decades has been generally good for Thermo Fisher, providing a strong base for the business. That can be seen in a few basic numbers: even though the stock is down 21% in the past 12 months, the company still boasts a market cap of $157 billion, and generated $42.9 billion in total revenue last year.
Thermo Fisher operates through several business divisions, catering to various aspects of the healthcare and medical research fields. The largest division, accounting for more than half of the firm's revenue, is laboratory products and biopharma services, which provides leading lines of lab products and support services for clinical research and development. This division also offers manufacturing services for specialized laboratory and research products. The company's second-largest division, accounting for almost $10 billion worth of revenue last year, is the life sciences solutions segment. Under this heading, Thermo Fisher maintains a portfolio of products and services specifically tailored to support research efforts in bioproduction and clinical markets.
The company's 'smaller' divisions, still conducting multi-billion dollar business, handle analytical instruments and specialty diagnostics. On the first, Thermo Fisher provides the technological base that labs need to keep up with the latest science, and to solve the various analytical problems that emerge from their research; on the second, the company's diagnostic tools are designed to provide cost-effective answers and improve patient outcomes.
At the ground level, there is substantial product overlap between these business divisions among Thermo Fisher's products. Most of the company's specific products and services, from antibodies and cell cultures, to chemicals and lab equipment, to lab services and training to instrument maintenance, have applications across a wide range of fields.
When we turn to the financial side, we find that Thermo Fisher beat the forecasts on both revenue and earnings in its 1Q25 report. The company's revenue of $10.36 billion was flat from the prior year – but was $130 million better than the estimates had predicted. On earnings, the company realized $5.15 per share by non-GAAP measures, beating the forecast by a nickel. The company's free cash flow in the quarter was down significantly (59%) year-over-year, but still came to $373 million.
In her coverage of the stock for Scotiabank, Sung Ji Nam notes the company's advantage of scale, and its potential to streamline its business. She says of Thermo Fisher, 'We continue to believe TMO's unparalleled commercial scale (combined with even more enhanced region-for-region capabilities by next year), innovation leadership, operational execution and cash flow potential, position the company well to reaccelerate its growth once the dust begins to settle on the concerns around the potential U.S. healthcare policy changes. We also believe that once there is some more clarity around the end market environment and outlook (which we anticipate throughout the second half), TMO is capable of further optimizing its business lines and operational capabilities to align with the best growth opportunities in life sciences and beyond.'
These comments back up her Outperform (i.e., Buy) rating on the shares, and her price target, set at $590, implies that TMO will gain 39% in the coming months.
Overall, this stock has earned a Strong Buy consensus rating based on 19 recent analyst recommendations that include 16 to Buy against just 3 to Hold. The shares are priced at $424.98 and their $546.72 average target price suggests that a 29% increase is waiting for the stock over the next year. (See TMO stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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