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Thermo Fisher (TMO) Down 4.1% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Thermo Fisher Scientific (TMO). Shares have lost about 4.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Thermo Fisher due for a breakout? 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 drivers.

Thermo Fisher Q1 Earnings Beat Estimates, Margins Down

Thermo Fisher’s first-quarter 2023 adjusted earnings per share of $5.03 beat the Zacks Consensus Estimate by 1.6%. However, the figure declined 30.6% year over year.

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

GAAP EPS was $3.32, down 40.8% on a year-over-year basis.

Revenues in Detail

Revenues in the quarter under review grossed $10.71 billion, down 9.4% year over year. The top line exceeded the Zacks Consensus Estimate by 1.3%.

Segment Details

Organic revenues in the reported quarter declined 8% year over year, while currency translation lowered revenues by 2%. Core organic revenue growth (excluding the impacts of COVID-19 testing revenue) was 6%.

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

Revenues in the Life Sciences Solutions segment (24.4% of total revenues) declined 38.3% year over year to $2.61 billion, while Analytical Instruments Segment sales (16.1%) increased 13.5% to $1.72 billion.

Revenues in the Laboratory Products and Biopharma Services segment (53.8%) rose 5.9% to $5.76 billion. The Specialty Diagnostics segment (10.3%) recorded a 25.2% year-over-year fall in revenues to $1.10 billion.

Margin Analysis

The gross margin of 39.9% in the first quarter contracted 752 basis points (bps) year over year on a 3.6% rise in the cost of revenues.

In the quarter, selling, general and administrative expenses fell 8.9% to $1.65 billion. Research and development expenses declined 4.9% to $346 million.

The adjusted operating margin for the quarter came in at 21.3%, reflecting a contraction of 774 bps.

Financial Position

The company exited first quarter 2023 with cash and cash equivalents of $3.48 billion compared with $8.52 billion at the end of fourth quarter 2022.

Cumulative net cash provided by operating activities was $729 million compared with $2.20 billion a year ago.

Thermo Fisher has a consistent dividend-paying history, with the five-year annualized dividend growth being 15.9%.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Thermo Fisher has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 D. 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 2.7% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.

Intuitive Surgical, Inc. reported revenues of $1.7 billion in the last reported quarter, representing a year-over-year change of +14%. EPS of $1.23 for the same period compares with $1.13 a year ago.

For the current quarter, Intuitive Surgical, Inc. is expected to post earnings of $1.32 per share, indicating a change of +15.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.6% 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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