Thermo Fisher (TMO) COVID Test Sales Grow, FX Woes Persist

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Thermo Fisher Scientific, Inc. TMO is rapidly boosting its inorganic growth profile through strategic acquisitions. Its strong focus on emerging markets is also encouraging. Yet, competitive headwinds and currency fluctuations continue to pose a threat. The stock has a Zacks Rank #3 (Hold).

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Thermo Fisher has outperformed its industry in the past year. The stock has risen 17.1% against the industry’s 10.5% fall. Thermo Fisher’s fourth-quarter results were better than expected. The company delivered 8% organic growth in the base business, ahead of its expectations. The robust year-over-year revenue growth across the Analytical Instruments and the Laboratory Products and Biopharma Services segments appears promising. The company’s strategic acquisitions of PPD, Inc. and PeproTech raise investors’ confidence. For the reported quarter, the company recognized $375 million of revenues for PPD in its newly-formed clinical research business.

In the quarter, Thermo Fisher generated $2.45 billion in COVID-19 response-related revenues. In October 2021, Thermo Fisher introduced the MagMAX Wastewater Ultra Nucleic Acid Isolation Kit to combat the spread of COVID-19. In December 2021, the company updated the Applied Biosystems TaqMan SARS-CoV-2 Mutation Panel to allow the direct detection of the highly contagious Omicron SARS-CoV-2 variant.

The company also witnessed strength across the majority of its end markets. In addition, the company’s accelerated investments to expand bioproduction capacity buoy optimism. The upbeat revenue and earnings guidance for 2022 is indicative that this strong growth momentum will continue.

On the flip side, Thermo Fisher saw a year-over-year decline in fourth-quarter earnings, raising apprehension. The gross margin of 50.5% contracted 341 basis points (bps) year over year. In the quarter, the company’s selling, general and administrative expenses increased 9.2%, whereas research and development expenses rose 4.3%. These escalating expenses led to a 481 bps contraction in adjusted operating margin, building significant pressure on the bottom line.
Thermo Fisher’s fourth-quarter 2021 diagnostics and healthcare end-market revenues declined 30%. The company also witnessed a 4.9% and 26.4% decline in revenues across the Life Sciences Solutions and the Specialty Diagnostics segments, respectively.

The COVID-19 headwinds impacted each of its end markets in varying degrees. Overall, the company saw significantly reduced customer activity due to work disruptions.

Foreign currency fluctuations and competitive landscape are the other major downsides.

Key Picks

Some better-ranked stocks from the broader medical space are AMN Healthcare Services, Inc. AMN, Henry Schein, Inc. HSIC and West Pharmaceutical Services, Inc. WST.

AMN Healthcare, carrying a Zacks Rank #2 (Buy), 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 gained 23.8% versus the 62% industry decline.

Henry Schein has an estimated long-term growth rate of 11.8%. HSIC’s earnings surpassed estimates in the trailing four quarters, the average surprise being 21.86%. It currently carries a Zacks Rank #1.

Henry Schein has gained 6.1% compared with the industry’s 1.7% rise over the past year.

West Pharmaceutical has a long-term earnings growth rate of 27.6%. West Pharmaceutical surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 29.4%.

West Pharmaceutical has outperformed its industry over the past year. WST currently carries a Zacks Rank of 2.

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