Thermo Fisher Scientific
(
TMO
) is scheduled to report its third quarter, fiscal 2012 results
before the market opens on Wednesday, October 24, 2012. The
company is expected to earn $1.16 (representing an increase of
8.29% from the year-ago quarter's $1.07) on revenues of $2.99
billion, according to the Zacks Consensus Estimate.
Barring the third quarter of fiscal 2011, Thermo Fisher has
surpassed expectations in the last three quarters with a
four-quarter positive surprise of 4.40%. This means that the
company has surpassed the Zacks Consensus Estimate by this
magnitude over the last four quarters. Based on this favorable
trend, there is a high probability that the company will exceed
estimates in the upcoming quarter.
Previous Quarter Highlights
Thermo Fisher reported adjusted earnings per share (EPS) of
$1.22 in the second quarter of fiscal 2012, surpassing the Zacks
Consensus Estimate of $1.16 and the adjusted EPS of 99 cents in
the year-ago period.
Revenues increased 9% year over year to reach $3.10 billion
during the quarter, nominally higher than the Zacks Consensus
Estimate of $3.05 billion based on overall growth across all
segments. Revenue growth on a pro forma basis (considering that
the Dionex and Phadia acquisitions were owned for the entire
second quarter in both years) was 1%. There was 1% tailwind from
acquisitions other than Dionex and Phadia, negated by a 3% impact
from currency translation.
Agreement of Analysts
Revisions in estimates for the third quarter have been mixed
over the past month. Of the total 15 estimates for the quarter,
one has been revised upward, while only 2 moved in the opposite
direction over the last 30 days. In the past week, only one
analyst revised the estimate and moved in the downward
direction.
However, for the entire fiscal, the estimate revision trend
confirms that the majority of analysts are in agreement about a
strong third quarter earnings at Thermo Fisher. Out of 17
estimates, there were 3 upward revisions over the last 30 days
without any revision in the opposite direction. Over the last 7
days, only one estimate revision has been made in the upward
direction.
Amid a tough macroeconomic environment which affected many
Thermo Fisher's peers, the analysts are encouraged by the
company's performance in the last reported quarter which
surpassed the estimates. Although, they make a cautious stand on
the company due to ongoing headwinds in the academic and
government end markets, they are encouraged by the company's
highly diversified nature and believe that it should benefit from
its current focus on food safety, water quality, climate change
and molecular research.
Meanwhile, the firms are optimistic about the company's
continuous acquisition spree which includes the recent ones like
One Lambda, Dionex and Phadia, which will strengthen the
company's product portfolio and provide better access to regions
with strong potential. They believe that the acquisition of One
Lambda, with strong operating margin should also benefit the
company and be accretive to earnings in 2013. Moreover,
according to the analysts, Thermo Fisher has a strong presence in
the emerging markets than its peers and China could prove to be
significant for the company's growth.
However, concern remains about lower organic growth
expectations over the next two years as its exposure to China is
still quite low, not so encouraging ROIC because of continued
M&A activities and the ongoing economic uncertainty.
Thermo Fisher provided a detailed outlook for fiscal 2012. The
company expects to report revenues of $12.14−$12.26 billion
(previous guidance of $12.27−$12.43 billion) in fiscal 2012
reflecting the impact of divestiture of laboratory workstations,
unfavorable currency, partially offset by an additional revenue
from Doe & Ingalls acquisition. However, the outlook for
adjusted EPS was raised to $4.74−$4.84 ($4.71−$4.83), resulting
in 14−16% (13−16%) growth on the back of the previously mentioned
factors as well as increased stock repurchase authorization.
In spite of the current uncertainty in the global governmental
funding, most of the analysts are encouraged with the outlook and
are confident that Thermo Fisher would be able to meet its
guidance based on its strong fundamentals and business
strategies.
Magnitude of Estimate Revisions
There have been no estimate revisions for the third quarter
over the past 60 days. However, estimates for the quarter have
gone down by a penny over the past 3 months. Moreover, estimates
for fiscal 2012 have increased by a penny and 3 cents to $4.81
over the past 30 and 90 days, respectively. The current Zacks
Consensus Estimate for 2012 is $4.81, reflecting year-over-year
growth of 15.65%.
Recommendation
We are encouraged with the strong performance of Thermo Fisher
in the recent quarters. The company has been recording
improved operating margin over the recent past, reflecting the
initiatives to keep the cost structure lean. It is also banking
on Practical Process Improvement (PPI) and PPI-Lean projects. The
huge potential in the emerging markets led the company to focus
on these regions, which paid off with their robust performances
in the recent quarters.
The company's strong cash position enables it to make suitable
acquisitions, or repurchase shares, thereby improving the bottom
line further. However, several factors, including unfavorable
foreign exchange movement, deferrals in buying decisions of
customers could negatively impact the company's sales in the
upcoming quarter that led it to lower the revenue outlook for
2012. Thermo Fisher operates in a fiercely competetive market
with peers like Life Technologies (
LIFE
). We are currently 'Neutral' on the stock over the long
term.
LIFE TECHNOLOGS (LIFE): Free Stock Analysis
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THERMO FISHER (TMO): Free Stock Analysis
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