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Thermo Fisher (TMO) Up 9.8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Thermo Fisher Scientific (TMO). Shares have added about 9.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Thermo Fisher due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Thermo Fisher Q3 Earnings Beat Estimates, Margins Down

Thermo Fisher’s third-quarter 2022 adjusted earnings per share of $5.08 beat the Zacks Consensus Estimate by 6.3%. The figure however declined 12% year over year.

The adjusted number excludes certain non-recurring expenses, including asset amortization costs and certain restructuring costs.

GAAP earnings per share was $3.79, reflecting a 20.9% drop on a year-over-year basis.

Revenues in Detail

Revenues in the quarter under review grossed $10.68 billion, up 14% year over year. The top line exceeded the Zacks Consensus Estimate by 8.3%.

Segment Details

Organic revenues in the reported quarter declined 1% year over year, while currency translation lowered revenues by 5%. Products added with acquisitions drove revenues higher by 20%. Core organic revenue growth (considering the impact of PPD revenue, excluding the impacts of COVID-19 testing revenue) was 14%.

Thermo Fisher operates under four business segments — Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products and Biopharma Services.

Revenues at the Life Sciences Solutions segment (27.7% of total revenues) declined 20.4% year over year to $2.96 billion, while Analytical Instruments Segment sales (15.2%) improved 9.8% to $1.62 billion.

Revenues at the Laboratory Products and Biopharma Services segment (52.3%) rose 60.2% to $5.59 billion. The Specialty Diagnostics segment (10%) however recorded a 21.8% year-over-year fall in revenues to $1.07 billion.

Margin Analysis

The gross margin of 41.5% in the third quarter contracted 990 basis points (bps) year over year on a 37.8% rise in the cost of revenues.

In the quarter, selling, general and administrative expenses increased 0.9% to $1.74 billion. Research and development expenses remained flat at $351 million.

The adjusted operating margin for the quarter came in at 22.2%, reflecting a contraction of 760 bps.

Financial Position

The company exited the third quarter of 2022 with cash and cash equivalents of $2.92 billion compared with $1.89 billion at the end of Q2.

Cumulative net cash provided by operating activities was $5.67 billion compared with $6.86 billion a year ago.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Thermo Fisher has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Thermo Fisher has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Thermo Fisher belongs to the Zacks Medical - Instruments industry. Another stock from the same industry, Intuitive Surgical, Inc. (ISRG), has gained 9.4% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Intuitive Surgical, Inc. reported revenues of $1.56 billion in the last reported quarter, representing a year-over-year change of +11%. EPS of $1.19 for the same period compares with $1.19 a year ago.

For the current quarter, Intuitive Surgical, Inc. is expected to post earnings of $1.25 per share, indicating a change of -3.9% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Intuitive Surgical, Inc. Also, the stock has a VGM Score of D.

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