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Can Thermo Fisher's (TMO) Product Portfolio Up Q4 Earnings?

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Thermo Fisher Scientific Inc. (TMO - Free Report) is slated to report fourth-quarter 2017 results before the market opens on Jan 31. Last quarter, the company delivered a positive earnings surprise of 3.1%. Moreover, Thermo Fisher has surpassed estimates in all the trailing four quarters with an average beat of 2.3%.

Let's see, how things are shaping up for this announcement.

Key Catalyst

Thermo Fisher has been going strong across its analytical instrument businesses with increasing global demand. Particularly, the company’s acquisition of FEI has already started generating synergies and largely contributing to its analytical instruments portfolio from the last three quarters. The buyout has enabled Thermo Fisher to access FEI’s industry leading high-performance electron microscopy platform used for protein study and facilitating life-science research. This is also a vital highlight of the quarter to be reported.

Thermo Fisher anticipates realizing total synergies of approximately $80 million by the end of three years following the deal’s closure with about $55 million of cost synergies and roughly, $25 million of adjusted operating income benefits from revenue-related synergies. This should get reflected in fourth-quarter 2017 performance.


Apart from FEI-related development, another notable launch in the company’s Analytical Instruments business is its new line of Thermo Scientific air-quality monitors called the iQ Series. This platform includes mobile applications for remote monitoring and control as well as wireless connectivity and enhanced services. This in turn is likely to contribute to the company’s top line in the yet-to-be-reported quarter.

Last but not the least, worth mentioning is the company’s recent completion of taking over the desktop scanning electron microscopy (SEM) solutions provider, Phenom-World. Thermo Fisher plans to integrate the business into its Analytical Instruments segment. Per management, addition of Phenom-World’s desktop SEM platform is projected to leverage its position in electron microscopy space and expand its entry-level plus desktop SEMs offerings for customers working in materials science, industrial manufacturing, life sciences and electronics industries.

Overall, the Waltham MA-based company is gearing up for yet another quarter of strong analytical instruments segmental growth. In the period to be reported, Thermo Fisher expects to see a positive impact from the electron microscopy business as well as robust volume expansion plus productivity.

The Zacks Consensus Estimate for Analytical Instruments revenues is pegged at $1.303 billion, higher than the sequentially last quarter’s reported figure of $1.190 billion. Total revenue estimate for this segment also remains at an impressive level of $1.11 billion.

Here are other factors that might influence Thermo Fisher’s fourth-quarter results:

The company’s focus to boost growth through implementation of strategies and consolidating its product offerings is encouraging. These initiatives are likely to help it post impressive results in the fourth quarter.

The company had spent $750 million on research and development in 2016 and the same trend is continuing through 2017. We expect all innovations and product launches to significantly contribute to the company’s top line in the fourth quarter itself.

The company’s aim to expand capabilities in the fast-growing Asia-Pacific zone as well as the emerging markets should also lead to solid results. Recent standout contributors are China, India and South Korea. With strategic investments to support key customer applications, Thermo Fisher forecasts to maintain this bullish momentum for the rest of 2017.

Growth is also estimated in applied markets such as environmental and food safeties apart from life science. In addition, the company is betting on some key areas under focus with enormous opportunities at its disposal including advancing precision medicines from mass spectrometry to the targeted gene sequencing and structural biology. 

However, we are apprehensive about Thermo Fisher citing a foreign exchange headwind on 2017 revenues and adjusted EPS. Also, a hostile macroeconomic condition continues to weigh heavily on the stock. Plus, stiff competition consistently imposes challenges on the stock’s value.

Here’s what our quantitative model predicts:

Thermo Fisher does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat this quarter.

Zacks ESP: Thermo Fisher has an Earnings ESP of -0.2%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Thermo Fisher’s Zacks Rank of 3 increases the predictive power of ESP. However, we need a positive ESP to be confident about an earnings surprise. Hence, this combination leaves surprise prediction inconclusive.

The Zacks Consensus Estimate for fourth-quarter 2017 earnings per share of $2.66 reflects a 10.3% rise on a year-over-year basis.

Stocks to Consider

Here are a few medical stocks worth considering with the right combination of elements to beat estimates this time around.

Bio-Rad Laboratories, Inc. (BIO - Free Report) has an Earnings ESP of +4.45% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Myriad Genetics, Inc. (MYGN - Free Report) has an Earnings ESP of +0.42% and is a Zacks #3 Ranked player.

Henry Schein, Inc. (HSIC - Free Report) has an Earnings ESP of +0.35% and is a #3 Ranked player.

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