Here's Why You Should Hold On To Thermo Fisher Stock For Now
Zacks Investment Research | Dec 26, 2019 10:26PM ET
Thermo Fisher Scientific Inc. (NYSE:TMO) has been gaining from several sales-building efforts — including product launches, acquisitions and increasing focus on segments. The company has also been enhancing focus on international markets. Further, it strengthened global capabilities to enhance its unique customer value proposition, which is gaining popularity.
However, the company’s gross margin contraction and adjusted operating loss are concerning.
Over the past year, shares of the Zacks Rank #3 (Hold) stock have outperformed its industry . The stock has gained 46.4% compared with 21.8% growth of its industry. Also, Thermo Fisher has outperformed the S&P 500’s 28.4% rise during the same period.
The renowned medical and laboratory equipment provider has a market capitalization of $131 billion. The company projects growth of 12.5% for the next five years and expects to maintain its strong segmental performance. Further, it delivered a positive earnings surprise of 1.9%, on average, over the trailing four quarters.
Based on solid prospects, it is worth holding on to the company for now.
Factors That Make the Stock an Attractive Pick
Strong Q3 Results: Thermo Fisher witnessed year-over-year revenue improvements in three of its four business segments as well as globally, which bode well. The company is upbeat about the solid year-over-year improvement in the Life Sciences Solutions Segment, led by strong performances of pharma and biotech. It registered rise in gross profit on solid top-line performance, which buoyed investors’ optimism.
The company’s raised guidance for 2019 indicates that it will be able to maintain its ongoing bullish momentum throughout the rest of the year.
Product Launches: We are upbeat about Thermo Fisher’s slew of product launches, including TSQ Altis, Quantis MD mass spectrometers and Vanquish MD HPLC for clinical diagnostic laboratories. We are optimistic about the company’s broadening global market reach, with new Biosciences Customer Exploration Center in Shanghai and the expansion of a clinical trial logistics facility in Suzhou.
Further, Thermo Fisher launched a scalable bioreactor workflow called Thermo Scientific TruBio Discovery Automation System. The system establishes connections between bioreactors, controllers and software for easy data transfer.
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Acquisitions: We are optimistic about the company’s slew of acquisitions, the recent one being that of an active pharmaceutical ingredient manufacturing facility of GlaxoSmithKline (NYSE:GSK) in Cork, Ireland. The site produces complex Active Pharmaceutical Ingredients used to treat diseases, including childhood cancers, depression and Parkinson’s.
This apart, acquisitions of HighChem (a small business that expands Thermo Fisher’s mass spectrometry software offerings) and Brammer Bio (provides treatment options in gene and cell therapies to patients with rare diseases) were other milestones for the company.
Downsides
Revenues Decline: The recent divestment of Thermo Fisher’s Anatomical Pathology business has put pressure on its revenues. The segment, which was part of the Specialty Diagnostics business, steadily generated revenue growth for the company in the past. The divestment, which was completed in the second quarter of 2019, put pressure on Thermo Fisher's earnings performance in the third quarter.
Competitive Landscape: Due to the company’s diversified portfolio, it faces various types of competitors, including several manufacturers and third-party distributors. The competitive landscape is quite tough, with changing technology and customer demand, which require continuous research and development.
Estimate Trend
Thermo Fisher is witnessing a positive estimate revision trend for the current year. Over the past 60 days, the Zacks Consensus Estimate for its earnings has moved 0.7% north to $12.33.
The Zacks Consensus Estimate for the company’s 2019 revenues is pegged at $25.5 billion, suggesting 4.7% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks from the broader medical space are Haemonetics Corporation (NYSE:HAE) and NuVasive, Inc (NASDAQ:NUVA) .
Haemonetics, currently carrying a Zacks Rank #2 (Buy), has a projected long-term earnings growth rate of 13.5%. You can see Zacks Investment Research
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