Will Thermo Fisher (TMO) Beat Earnings Estimates in Q4?

MA-based medical instruments manufacturer, Thermo Fisher Scientific, Inc. TMO is scheduled to report fourth-quarter and full-year 2016 results before the opening bell on Jan 31. Last quarter, the company posted a positive earnings surprise of 3.05%. In the trailing four quarters, the company posted  an average beat of 2.12%. Let’s see how things are shaping up prior to this announcement.

Factors at Play

Thermo Fisher posted a strong third quarter, with both the top line and the bottom line trumping estimates. The company aims to boost growth through the implementation of strategies and strengthening of its product offerings. These initiatives are likely to help it post solid results in the fourth quarter as well.

Thermo Fisher Scientific Inc Price and EPS Surprise

 

Thermo Fisher Scientific Inc Price and EPS Surprise | Thermo Fisher Scientific Inc Quote

The recent acquisition of FEI is the highlight of the to-be reported quarter. Thermo Fisher also expects to realize total synergies of approximately $80 million by the end of three years following the deal closure, with about $55 million of cost synergies and roughly $25 million of adjusted operating income benefits from revenue-related synergies. This should get reflected from the fourth quarter itself.

We are also looking forward to the integration and synergies from Affimetrix, another mega takeover by Thermo Fisher, which is expected to boost its offerings in the fast-growing flow cytometry market.

Management expects to expand its footprint in the emerging markets of China, South Korea, Southeast Asia and India. The growth is likely to be in applied markets such as environmental and food safeties as well as life science. We are also upbeat about the significant product launches in the fourth quarter and an enhancement in the company’s customer value proposition.

In the bioproduction and biosciences businesses, we anticipate strong and consistent growth in the forthcoming quarters. Strong productivity and incremental cost synergies are projected to improve operational efficiencies further.

However, we are apprehensive about Thermo Fisher citing around four less days’ influence on its fourth quarter organic revenue growth number. The company expects that these lesser number of days may result in essentially flat year-over-year organic growth performance. However, on a days adjusted equivalent basis, the company predicts the fourth quarter to register organic growth of about 4.5% year over year. Considering this days-adjusted growth, the company expects full-year organic growth of about 4.5% (unchanged from the earlier expectation).

On the flip side, we currently await Supreme Court’s verdict on certain patent infringement case on Life Technologies, which had merged with Thermo Fisher in 2014. If the judgement goes against the company, it may affect Thermo Fisher’s bottom line. Moreover, increased competition continues to raise caution.

Overall Thermo Fisher is confident about delivering a year of strong growth, banking on strong quarters of operational performance, a less adverse foreign exchange environment than expected and capital deployment activities. All of these are likely to strongly enhance the company’s strategic position over the long term.

Earnings Whispers

Our proven model does not conclusively show that Thermo Fisher is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Thermo Fisher’s Earnings ESP is 0.00%, since both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $2.38. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Thermo Fisher has a Zacks Rank #3 which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may consider as our model shows that they have the right combination of elements to post an earnings beat in the upcoming quarter:

Histogenics Corporation HSGX has an Earnings ESP of +12.77% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Universal Health Services, Inc. UHS has an Earnings ESP of +4.97% and a Zacks Rank #2.

Catabasis Pharmaceuticals, Inc. CATB has an Earnings ESP of +5.77% and a Zacks Rank #3.

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Thermo Fisher Scientific Inc. (TMO): Free Stock Analysis Report
 
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