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Can Overall Growth Drive Thermo Fisher (TMO) Q3 Earnings?

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Thermo Fisher Scientific Inc. (TMO - Free Report) is slated to report third-quarter 2018 results before the market opens on Oct 24. Last reported quarter, the company delivered a positive earnings surprise of 4.56%. Moreover, the company surpassed estimates in all the trailing four quarters with an average beat of 3.97%.

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

Key Catalysts

Thermo Fisher has been going strong with its analytical instrument business, boasting higher global demand. The company is witnessing balancedgrowth across all its businesses within this segment, particularly in chemical analysis, chromatography mass spectrometry and electron microscopy. Its acquisition of FEI has been largely contributing to its analytical instruments portfolio over the past year. Ever since, the company has introduced several products which leverage its leading instrument platforms and digital capabilities.

The buyout has also enabled Thermo Fisher to access FEI’s industry leading high-performance electron microscopy platform used for protein study as well as facilitating life-science research. 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.

Further, we are optimistic about a favorable NIH (National Institutes of Health) funding scenario.According to Thermo Fisher, NIH funds are flowing well and we are specifically upbeat about NIH's announcement in May to allocate $130 million to research based on cryo-electron microscopy, which bodes well for huge future demand. This also indicates a vital highlight of the company’s analytical instrument performance.

Moreover, we are looking forward to the company’s recently-announced takeover plan of Gatan, a leading manufacturer of filters, cameras and software for electron microscopes. Per Thermo Fisher, the integration will enable the company to improve its performance within electron microscopy by accelerating its discoveries. We expect to complete this transaction by the end of 2018.

The company is also progressing well with respect to its next-generation sequencing (NGS) business. Its recently-introduced Ion GeneStudio S5 Series of instruments offers a full solution to help researchers invent cancer diagnostics for clinical treatments. This development is likely to aid the company’s top line in the yet-to-be-reported quarter.

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

The Zacks Consensus Estimate for Analytical Instruments revenues is pegged at $1.257 billion, 5.6% higher than the year-ago figure of $1.190 billion.

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

The company’s focus on boosting growth through implementation of strategies and consolidating its product offerings is encouraging. These initiatives might in turn, help it post impressive results during the third quarter.

The company had spent nearly $1 billion on research and development in 2017 and the same trend is continuing through 2018. Alike the last reported quarter, we expect all innovations and product introductions to substantially drive the company’s top line in the third quarter.

The company’s aim at expanding capabilities across the fast-growing Asia-Pacific belt as well as the emerging markets should also strongly enhance its results. Recent standout contributors are China, India and South Korea. With strategic investments in supporting key customer applications, Thermo Fisher forecasts to sustain a bullish momentum for 2018.

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

However, we are anxious about Thermo Fisher facing a foreign exchange headwind pertaining to 2018 revenues and adjusted EPS. Also, a hostile macroeconomic condition continues to weigh heavily on the stock. Plus, stiff competition persistently poses challenges to the stock’s value.

Here’s What the Quantitative Model Predicts:

Per the proven Zacks model, a company with a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Thermo Fisher has a Zacks Rank #3, which increases the predictive power of ESP. It also has an Earnings ESP of +0.48%, indicative of a likely earnings surprise. The combination suggests a probable earnings beat for the company this reporting cycle.

Other Stocks to Consider

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

Henry Schein, Inc. (HSIC - Free Report) has an Earnings ESP of +0.33% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

DaVita Inc. (DVA - Free Report) has an Earnings ESP of +2.41% and a Zacks Rank of 2.

Masimo Corporation (MASI - Free Report) has an Earnings ESP of +0.98% and is a Zacks #2 Ranked player.

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