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We recently reiterated our Neutral recommendation on Thermo Fisher Scientific (TMO - Analyst Report), a major scientific instrument maker. While we hold a favorable view regarding the company’s huge potential in the emerging markets, cost reduction initiatives and value added acquisitions, concerns linger around the overall soft industry trends with headwinds in the government and academic markets. The stock currently carries a Zacks Rank #3 (Hold).

Why at Neutral?

Thermo Fisher’s fourth-quarter 2012 results were encouraging with adjusted earnings per share (EPS) of $1.36, surging past both the Zacks Consensus Estimate of $1.28 and the adjusted EPS of $1.19 in the year-ago period. Revenues increased 6% year over year based on 4% organic growth.

Given the huge potential in the emerging markets, the company has been focusing on these regions, which paid off with their robust performance during the quarter. In the reported quarter, TMO recorded high single-digit growth in Asia-Pacific and low double-digit growth in Rest of the World. We are also optimistic about the company’s persistent acquisition spree including the recent One Lambda, Dionex and Phadia acquisitions, which are expected to strengthen Thermo Fisher’s product portfolio and provide better access to regions with strong potential.

Moreover, Thermo Fisher continued to benefit from the successful execution of its $100 million and $75 million of restructuring actions initiated in 2011 and 2012, respectively.

However, over the past several years, Thermo Fisher has been witnessing headwinds in the government and academic markets. Moreover, many countries in Europe are facing a turbulent economic situation, which might impact their academic budgets. We remain cautious since growth could moderate if the economic scenario worsens.

Over the past 30 days, three of the 13 firms covering the stock made positive estimate revisions for the current quarter, while two moved in the opposite direction, implying that they still hold similar views on the stock.

Other Stocks to Consider

While we prefer to remain on the sidelines on Thermo Fisher, other medical device stocks worth a look are Given Imaging , Medical Action Industries Inc. and Cytokinetics Incorporated (CYTK - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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