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Here's Why You Should Hold on to Thermo Fisher (TMO) for Now

Zacks Equity Research
·4-min read

Thermo Fisher Scientific Inc. TMO has been gaining from robust segmental growth and product launches. The expansion of the company’s global market outreach by acquisitions and setting up new centers also buoys optimism. However, the contraction of the gross margin in the fourth quarter is concerning. Also, the coronavirus pandemic is adversely impacting the stock price.

Over the past year, shares of the Zacks Rank #3 (Hold) company have outperformed its industry. It has gained 9.2% against the 10.4% fall of its industry. Also, it has outperformed the S&P 500’s 8.1% decline during the same period.

The renowned medical and laboratory equipment provider has a market capitalization of $121.24 billion. The company projects 14% growth for the next five years and expects to maintain its strong segmental performance. Further, it delivered a positive earnings surprise of 1.5%, on average, over the trailing four quarters.

 


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Let’s delve deeper.

Efforts to Combat Coronavirus: We are upbeat about the company’s ongoing efforts to combat the pandemic. It received an emergency use authorization (“EUA”) from the FDA for its diagnostic test, which can be used by Clinical Laboratory Improvement Amendments high-complexity laboratories in the United States to detect nucleic acid from SARS-CoV-2. Further, the company received the EUA for its AcroMetrix Coronavirus 2019 (COVID-19) RNA Control, which is its latest quality-control product to monitor and validate COVID-19 molecular diagnostic tests.

Further, Thermo Fisher received the CE mark in the European Union for its diagnostic test to detect nucleic acid from SARS-CoV-2.

Partnerships and Acquisitions: We are optimistic about the company’s recently inked agreement with Janssen Biotech, one of the Janssen Pharmaceutical Companies of Johnson & Johnson, where the companies will develop companion diagnostic (CDx) in oncology. Further, Thermo Fisher’s plan to acquire QIAGEN (expected to be completed in the first half of 2021) buoys optimism. The buyout deal will enable Thermo Fisher to expand its Specialty Diagnostics portfolio and improve its R&D segment.

Impressive Q4 Results: We are optimistic about the company’s better-than-expected fourth-quarter 2019 results. Strong year-over-year revenue growth of the majority of its segments and strength in all of its end markets buoy optimism. Solid international performance, with growth in Europe and the Asia Pacific, bodes well. The launch of the Ion Torrent Genexus next-generation sequencing instrument also boosts market sentiment.

Downsides

Competitive Landscape: The company faces significant competition from a broad range of manufacturers and third-party distributors. The changing technology and customer demand that requires continuous research and development is making it tougher for Thermo Fisher.

Economic Uncertainty: A major part of the company’s revenues are generated from its international business, which, in turn, is heavily dependent on general economic conditions. It has been witnessing headwinds in the government and academic markets. Further, the coronavirus pandemic is leading to an economic crisis.

Estimate Trend

The Zacks Consensus Estimate for the company’s first-quarter 2020 revenues is pegged at $6.33 billion, suggesting a 3.3% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are ResMed Inc. RMD, National Vision Holdings, Inc. EYE and Phibro Animal Health Corporation PAHC.

ResMed has a projected long-term earnings growth rate of 14.4%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

National Vision’s long-term earnings growth rate is estimated at 10.7%. The company presently has a Zacks Rank #2.

Phibro’s long-term earnings growth rate is estimated at 2.1%. It currently carries a Zacks Rank #2.

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