We reiterate our Neutral recommendation on
Thermo Fisher Scientific
) with a target price of $59.00.
Thermo Fisher reported a strong second quarter with both
adjusted EPS of $1.22 and revenues of $3.10 billion sailing past
the Zacks Consensus Estimates. The company revised its 2012 outlook
and now expects to report revenues of $12.14−$12.26 billion
(previous guidance of $12.27−$12.43 billion) to reflect the
divestiture of laboratory workstations business, unfavorable
currency, partially offset by additional revenue from the Doe &
However, the outlook for adjusted EPS has been raised to
$4.74−$4.84 ($4.71−$4.83), resulting in 14−16% (13−16%) growth.
Apart from the above mentioned factors, increased stock repurchase
authorization led the company to raise its EPS outlook.
With the successful implementation of several initiatives, the
company has expanded its margins over the last few quarters. These
include the adoption of Practical Process Improvement ("PPI") and
PPI-Lean projects, continued tight cost control on discretionary
spending, and global sourcing.
Further, the company's strategy to optimize infrastructure
helped reduce footprint and expand low-cost region manufacturing in
China, Mexico, Puerto Rico and Eastern Europe. PPI and PPI-Lean
initiatives are expected to result in $80 million of savings in
2012, while approximately $20 million will be realized from reduced
Thermo Fisher's past acquisitions have added complementary
technologies, expanded its presence in high-growth markets, and
generated cost and revenue synergies, thereby creating shareholder
value. The recent being the proposed acquisition of One Lambda that
would strengthen its foothold in the transplant diagnostics market,
which offers immense growth potential.
This came on the heels of the acquisition of Doe & Ingalls,
a channel for specialty production chemicals and provider of
customized supply-chain services to life sciences and
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 2 million
shares for $100 million during the quarter taking the share buyback
to $400 million in the first half of the fiscal year. With $250
remaining at the end of the second quarter and an incremental
buyback authorization of $500 million, the company is left with
$750 million of authorization through the year end.
However, the company has faced the brunt of weak government and
academic markets. Many countries in Europe, grappling with debt
burden, would look to trim their budgets. 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 #3 Rank (Hold) in the
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