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What's in Store for Thermo Fisher (TMO) in Q4 Earnings?

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Thermo Fisher Scientific Inc. TMO is slated to release the fourth quarter and 2019 results on Jan 30, before market open. In the last reported quarter, it posted a positive earnings surprise of 2.08%. The company reported better-than-expected earnings results in all of the trailing four quarters, the average being 1.88%.

Let's discuss the factors that are likely to get reflected in the upcoming results.

Key Catalysts

For the past few quarters, Thermo Fisher has been witnessing robust revenue growth and improvement in earnings performance, banking on the continued focus on significant value creation from its R&D investments.

In the last reported quarter, Thermo Fisher benefitted from the launch of analytical instruments for the diagnostic laboratory. The company is expected to have continued gaining from the same in the fourth quarter.

We are upbeat about continued robust performances of Thermo Fisher’s three systems (which are FDA-listed Class I medical devices) — Vanquish MD High Performance Liquid Chromatography (HPLC), TSQ Altis MD Series mass spectrometer and Quantis MD Series mass spectrometer — in the analytical instruments segment. This, while improving the company’s comprehensive platform for developing sensitive and reliable laboratory developed tests (LDTs), is likely to have continued to aid its performance in the fourth quarter.

The Zacks Consensus Estimate for analytical instruments’ revenues is pegged at $15.93 billion for the fourth quarter, suggesting an increase of 1.6% from the year-ago quarter’s reported figure.

Product launches through the second half of 2019 are expected to have driven revenue growth for the life science solutions segment in the fourth quarter. A new generation of Krios instrument (Krios G4) in the company’s Cryo-EM platform for structural biology applications, the real-time PCR pathogen detection system and scalable bioreactor workflow called TruBio Discovery Automation System (a scalable bioreactor workflow) are some of the highlighted launches, which are likely to have contribute to Thermo Fisher top line in the fourth quarter.

Apart from this, the addition of Brammer Bio (a leader in viral vector manufacturing for gene and cell therapies), which expanded the company’s offering in the fast-growing gene therapy market, is likely to have contributed significantly to its fourth-quarter top line. In October 2019, it completed the acquisition of an active pharmaceutical ingredient manufacturing facility from GlaxoSmithKline (GSK), which is expected to have aided to Thermo Fisher’s fourth-quarter performance.

The Zacks Consensus Estimate for life science solutions’ revenues is pegged at $18.20 billion for the fourth quarter, suggesting an increase of 7.2% from the year-ago quarter’s reported number.

Within specialty diagnostics, Thermo Fisher has been witnessing broad-based growth, backed by robust performances by transplant diagnostics and immunodiagnostics. Further, the company has been enhancing its capabilities to serve the growing biopharmaceutical industry in China (which is its largest market outside the United States). To this end, it earlier expanded its clinical trial capabilities by setting up a facility in Suzhou, China. The company also announced the official opening of a Customer Solution Center in Shanghai, China, in November 2019. These developments have likely contributed to Thermo Fisher’s top line in the fourth quarter.

The Zacks Consensus Estimate for specialty diagnostics’ revenues is pegged at $921 million for the fourth quarter, suggests a decline of 3.2% from the year-ago quarter’s reported figure.

Other Factors to Note

Turning to pharma and biotech, the company witnessed strong growth in the third quarter, backed by consistent strength in all end markets, with a wide range of products and services. This is expected to have continued in the fourth quarter.

However, Thermo Fisher expects foreign-exchange fluctuation to have negatively impacted fourth-quarter revenues.

Q4 & 2019 Estimates

The Zacks Consensus Estimate for total revenues of $6.78 billion for the fourth quarter suggests growth of 4.25% from the prior-year quarter’s reported figure. Also, the consensus mark for earnings of $3.54 per share indicates 8.92% rise from the year-ago quarter's reported figure.

For the year, the Zacks Consensus Estimate for total revenues is pegged at $25.50 billion. The same for earnings is pegged at $12.33 per share, suggesting an improvement of 10.88% from the year-ago period.

What Our Quantitative Model Predicts

Our proven model predicts an earnings beat for Thermo Fisher this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Thermo Fisher has an Earnings ESP of + 0.25%.

Zacks Rank: The company currently carries a Zacks Rank #3.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering, as these too have the right combination of elements to post an earnings beat this quarter.

DexCom, Inc. DXCM currently has an Earnings ESP of +17.07% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

DENTSPLY SIRONA Inc. (XRAY - Free Report) presently has an Earnings ESP of +1.16% and a Zacks Rank #2.

Tandem Diabetes Care, Inc. TNDM has an Earnings ESP of +27.59%. It currently sports a Zacks Rank #1.

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