Thermo Fisher Scientific Inc. TMO is well poised for growth in the coming months, backed by strong end-market growth. The company’s focus on international markets looks encouraging. However, foreign currency fluctuations and stiff competition continue to threaten the company.
Over the past year, the Zacks Rank #3 (Hold) company has outperformed its industry. It has gained 24.6% against the 0.7% fall of its industry and the S&P 500’s 24.5% growth.
The renowned medical and laboratory equipment provider has a market capitalization of $246.36 billion. The company projects 14% growth for the next five years compared to the industry’s growth of 15.7%.
Strength in End Markets: In third-quarter 2021, barring diagnostics and healthcare, Thermo Fisher witnessed strength in all four end markets categorized either by customer type or geography. Within the pharma and biotech end market, the company reported more than 20% growth driven by strong market dynamics, unique customer value proposition, and customer support across a wide range of exciting therapeutic areas (including COVID-19 vaccines and therapies space). The quarter demonstrated broad-based strength in bioproduction, pharma services, biosciences, chromatography, mass spectrometry businesses, and the research and safety market channel.
COVID-Related Progress: Even in the third quarter, Thermo Fisher played a very meaningful role in terms of COVID-19 testing, vaccines and therapies development. The company generated $2.05 billion in COVID-19 response-related revenues in this period. With the surge in the Delta variant, testing demand continued to rise globally in the third quarter. As before, the majority of COVID-19 response revenue were recognized in the Life Sciences Solutions segment, with the remainder being recognized within the Products and Services and Specialty Diagnostics arms.
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Focus on International Markets: Thermo Fisher boasts strong international operations and has witnessed consistent growth in high-growth and emerging markets. In the quarter under review, Europe grew over 20%, the Asia Pacific grew low double digits while China grew in the low single digits. The company plans to continue strengthening its foothold in emerging markets, such as China and India, and translate this success to other high-priority opportunities in regions such as South Korea, Russia, and Brazil.
Exposure to Foreign Currency: Thermo Fisher derives more than 50% of its revenues from the international market, exposing it to foreign currency fluctuations. In the past several years, the company’s earnings were affected significantly by foreign exchange headwinds.
Tough Competitive Pressure: On account of its diversified portfolio, Thermo Fisher faces different types of competitors, including a broad range of manufacturers and third-party distributors. The competitive landscape is quite tough with changing technology and customer demands that require continuous research and development.
Thermo Fisher has been witnessing a positive estimate revision trend for 2021. Over the past 90 days, the Zacks Consensus Estimate for its earnings per share (EPS) has moved 7.6% north to $23.76.
The Zacks Consensus Estimate for 2021 revenues is pegged at $37.47 billion, suggesting 16.3% growth from the year-ago reported number.
A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. AMN, Apollo Endosurgery, Inc. APEN and Laboratory Corporation of America Holdings LH.
AMN Healthcare, carrying a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has outperformed its industry over the past year. AMN has gaine 50.1% versus the 54.9% industry decline.
Apollo Endosurgery, carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 7%. The company‘s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 25.6%, on average.
Apollo Endosurgery has outperformed its industry in the past year. APEN has gained 91.7% against the industry’s 0.7% fall.
Laboratory Corporation surpassed earnings estimates in each of the trailing four quarters, the average surprise being 25.7%. The company currently sports a Zacks Rank #1.
Laboratory Corporation’s long-term earnings growth rate is estimated at 10.6%. The company’s earnings yield of 9.4% compares favorably with the industry’s 3.4%.
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