Thank you for sharing your analysis—very clear and well-structured.
I had a question regarding the PEG ratio. You mentioned it is "just below 2x," which you find attractive. However, if we take your target multiple of 22x for FY27 and compare it with the estimated EPS growth (between 8% and 11% annually), the resulting PEG would be more in the range of 2.0x to 2.75x, depending on the starting point.
In that context, don’t you think a more conservative P/E ratio — for example, 16x — might better reflect that growth rate, especially in an environment with positive real interest rates where multiples tend to compress?
From that perspective, it would seem that the market is already pricing in a good portion of the expected FY27 growth. How do you see the potential for multiple expansion from these levels? What levers could justify it?
Hi GT! Yes, you are totally right. Using this exit multiple does reflect a higher forward PEG, but one I am willing to pay based on current projections and estimates beyond 2027 and the important fact that I see no room for TMO to be disrupted nor for its long-term secular tailwinds to disappear - this is a compelling growth story well into the next decade at the very least.
Therefore, paying a premium for its forward growth is easily justified. I don't think a 22x earnings multiple and a PEG of 2.3-2.5 is a crazy valuation to pay.
So, yes, current multiples might reflect the growth we are getting through 2027, although not entirely, but not the reliability and quality we get from this long-term compounder well beyond those years.
As for multiple expansion, I am considering renewed investor confidence and TMO likely delivering solid and accelerating growth through 2027, as well as falling interest rates. This healthy progress should allow for some more multiple expansion.
Hello Daan,
Thank you for sharing your analysis—very clear and well-structured.
I had a question regarding the PEG ratio. You mentioned it is "just below 2x," which you find attractive. However, if we take your target multiple of 22x for FY27 and compare it with the estimated EPS growth (between 8% and 11% annually), the resulting PEG would be more in the range of 2.0x to 2.75x, depending on the starting point.
In that context, don’t you think a more conservative P/E ratio — for example, 16x — might better reflect that growth rate, especially in an environment with positive real interest rates where multiples tend to compress?
From that perspective, it would seem that the market is already pricing in a good portion of the expected FY27 growth. How do you see the potential for multiple expansion from these levels? What levers could justify it?
Best regards, and thanks in advance!
Hi GT! Yes, you are totally right. Using this exit multiple does reflect a higher forward PEG, but one I am willing to pay based on current projections and estimates beyond 2027 and the important fact that I see no room for TMO to be disrupted nor for its long-term secular tailwinds to disappear - this is a compelling growth story well into the next decade at the very least.
Therefore, paying a premium for its forward growth is easily justified. I don't think a 22x earnings multiple and a PEG of 2.3-2.5 is a crazy valuation to pay.
So, yes, current multiples might reflect the growth we are getting through 2027, although not entirely, but not the reliability and quality we get from this long-term compounder well beyond those years.
As for multiple expansion, I am considering renewed investor confidence and TMO likely delivering solid and accelerating growth through 2027, as well as falling interest rates. This healthy progress should allow for some more multiple expansion.