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Thermo Fisher: Life Technologies Synergy on Track Post Q2

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On Aug 24, 2015, we issued an updated research report on Thermo Fisher Scientific Inc. (TMO - Free Report) – scientific instrument maker and a world leader in serving science.

Thermo Fisher reported a better-than-expected second-quarter 2015 with adjusted EPS and revenues exceeding the respective Zacks Consensus Estimate. However, the top line was affected year over year by the impact of unfavorable foreign exchange rates and divestitures. Despite that, Thermo Fisher increased its full-year 2015 revenue guidance reflecting strong operational performance as well as ample scope for improvement even amid the present challenges.

According to the company, it is on track to deliver revenue and cost synergy targets from the Life Technologies integration. At the end of 2015, the company expects to deliver $130 million worth of cost synergy benefits, a $5 million increase from the earlier target primarily because of accelerating realization of head count and sourcing synergies. The company is also confident of its overall three-year synergy target which had been raised from $300 million to $350 million.

Thermo Fisher expects revenue synergies to accelerate through 2015 and hence is confident to achieve the full-year 2015 guidance of $60 million in revenue synergies and $20 million in adjusted operating income pull-through. Year to date, revenue synergies total $25 million, lower than the midpoint of the target. However, the company expects a ramp up in this regard over the coming quarters.

Thermo Fisher has carried out multiple acquisitions that have added complementary technologies, expanded its presence in high-growth markets, and generated cost and revenue synergies thereby creating shareholder value. Apart from boosting revenue accretion, these deals have historically benefited the company’s operating margin while also resulting in tax synergies.

The company is optimistic about its recent developments which include a set of new product launches including Orbitrap Fusion LumosTribrid mass spectrometer and Q Exactive GC-MS/MS; the impending $400 million acquisition of Alfa Aesar and increased presence in emerging markets.

However, economic uncertainties and currency headwinds continue to act as major dampeners. The stock currently holds a Zacks Rank #2 (Buy).

Key Picks in the Sector

Other medical instrument stocks that warrant a look include ABIOMED, Inc. (ABMD - Free Report) , Edwards Lifesciences Corp. (EW - Free Report) and Accuray Incorporated (ARAY - Free Report) . All the three stocks carry the same Zacks Rank as Thermo Fisher.

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