We have reiterated our Neutral recommendation on
Thermo Fisher Scientific
) with a target price of $65.00.
Thermo Fisher reported a strong third quarter with both
adjusted earnings per share (EPS) of $1.19 and revenues of $3.09
billion sailing past the Zacks Consensus Estimates. The company
raised its 2012 outlook and now expects to report revenues of
$12.32−$12.40 billion (previous guidance of $12.14−$12.26
billion) and EPS of $4.81−$4.88 ($4.74−$4.84) resulting in 16−17%
(14−16%) growth to reflect the strong third quarter performance,
along with the completion of the One Lambda acquisition and a
slightly improved foreign exchange.
With the successful implementation of several initiatives, the
company has expanded its margins over the last few quarters. The
successful initiatives include benefits from global sourcing, the
optimization of infrastructure which may lead to site
consolidation or reduction in footprints, ramp up in low-cost
region (LCR) manufacturing as well as the adoption of
Practical Process Improvement
(PPI) program to reduce waste.
Further, due to the uncertain economic environment, the
company is working on additional restructuring actions. Recently,
it initiated restructuring actions worth another $75 million with
majority of the benefits expected in 2013. Overall, the company
realized $16 million of benefit from its restructuring actions in
the third quarter. We are encouraged by the company's progress
with respect to reducing manufacturing footprint.
Thermo Fisher's past acquisitions have added complementary
technologies, expanded its presence in high-growth markets, and
generated cost and revenue synergies, thereby increasing
shareholders' value. The recent being the newly completed
acquisition of One Lambda, which is likely to strengthen its
foothold in the immensely potent transplant diagnostics
The One Lambda acquisition followed the successful closure of
the Doe & Ingalls deal, a channel for specialty production
chemicals and provider of customized supply-chain services to
life sciences and microelectronics industries. Thermo Fisher also
has strong international operations. In fact, the emerging
markets generated robust growth in the most recent quarter with
China growing over 20%. The company expects to garner 25% of
total revenues from the high-growth Asia-Pacific and emerging
markets by 2016 from 19% in 2011 (10% in 2006).
Effective capital deployment has been one of the key
contributors toward EPS growth. The company repurchased 7.1
million shares for $400 million during the reported quarter,
taking the year-to-date share buyback to 15.1 million (for $800
million). It also distributed another $95 million in dividends in
However, the company has faced the brunt of weak government
and academic markets. Many countries in Europe, grappling with
debt burden, will likely curtail their budgets based on the weak
macroeconomic environment. Moreover, the company is exposed
to fluctuations in foreign exchange and a tough competitive
landscape with the presence of players such as
) among others.
Our recommendation is backed by a Zacks #2 Rank (Buy) in the
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