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

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Thermo Fisher Scientific Inc. (TMO - Free Report) is well poised for growth backed by robust segmental growth and banking on accelerated growth in Base business. The company’s better-than-expected results for second-quarter 2021 and raised 2021 guidance buoy optimism. However, foreign currency fluctuations and competitive landscape continue to pose a threat to the company.

Over the past year, shares of the Zacks Rank #3 (Hold) company have outperformed its industry. It has gained 31.7% against the 16.1% rise of its industry. Also, it has outperformed the S&P 500’s 31% rise during the same period.

The renowned medical and laboratory equipment provider has a market capitalization of $218.35 billion. The company projects 19.5% growth for the next five years and expects to maintain its strong segmental performance. Further, it delivered a positive earnings surprise of 10.4%, on average, over the trailing four quarters.

Riding on the company’s current business growth and bullish near-term prospects, this stock is worth holding on to, for now.

Key Growth Catalysts

Impressive Q2 Results: Thermo Fisher ended the second quarter of 2021 with better-than-expected numbers. The company delivered an outstanding quarterly performance with exceptionally strong year-over-year revenue growth across each of its reporting segments, banking on accelerated growth in Base business. In diagnostics and healthcare, the company registered growth in the high teens during the quarter and is seeing customer demand in base business approaching pre-pandemic levels. Strong end-market growth was driven by three factors, robust fundamentals in the life sciences, strong economic activity globally and the role this industry is playing in the pandemic response. Strong competitive position and excellent operational execution have allowed Thermo Fisher to gain share and deliver another outstanding quarter. Operating margin expansion in the second quarter was encouraging.

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Strength in End Markets: In second-quarter 2021, Thermo Fisher witnessed strength in all four of its end markets, categorized either by customer type or geography. Pharma and biotech registered more than 30% growth in the quarter driven by strong underlying market conditions, the benefit of unique customer value proposition and the company’s major role in supporting customers across a wide range of therapeutic areas, including significant role in COVID-19 vaccines and therapies. Robust growth was seen across all businesses serving these customers, including bioproduction, pharma services, biosciences, chromatography and mass spectrometry and in research and safety market channel.

In academic and government, the company grew 35% driven by robust customer activity globally. In particular, the company saw strong growth across a number of businesses, including biosciences, electron microscopy and the research and safety market channel.

Raised 2021 Guidance: The company has raised its revenue guidance for 2021 to $35.90 billion, indicating 11% reported growth over 2020 (earlier guidance was $35.6 billion, implying 10% reported growth expectation). Full-year adjusted earnings per share guidance has been raised to $22.07, indicating 13% growth over 2020 (previous guidance was $21.97, representing 12% year over year growth).

Downsides

On the flip side, there are some factors that have been deterring the stock’s rally of late.

Exposure to Foreign Currency: Thermo Fisher derives more than 50% of its revenues from the international market, which exposes it to fluctuations in foreign currency. In the past several years, the company’s earnings were affected significantly by foreign exchange headwinds.

Tough Competitive Pressure: On account of its diversified portfolio, Thermo Fisher faces different types of competitors, including a broad range of manufacturers and third-party distributors. The competitive landscape is quite tough with changing technology and customer demands that require continuing research and development.

Estimate Trends

Thermo Fisher has been witnessing a positive estimate revision trend for 2021. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 4.9% north to $7.76.

The Zacks Consensus Estimate for 2021 revenues is pegged at $5.34 billion, suggesting 41.4% growth from the year-ago reported number.

Key Picks

A few better-ranked stocks from the broader medical space are Envista Holdings Corporation (NVST - Free Report) , BellRing Brands, Inc. (BRBR - Free Report) and Henry Schein, Inc. (HSIC - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

Envista Holdings has an estimated long-term earnings growth rate of 26%.

BellRing Brands has an estimated long-term earnings growth rate of 22%.

Henry Schein has a projected long-term earnings growth rate of 14%.