Recently, we reiterated our Neutral recommendation on Thermo Fisher Scientific (TMO) with a target price of $55.00.
Thermo Fisher reported an adjusted EPS of 99 cents in the second quarter of fiscal 2011, a penny above the Zacks Consensus Estimate and 22% higher from the second quarter of 2010. Revenues increased 12% year over year to reach $2.90 billion during the quarter, beating the Zacks Consensus Estimate of $2.81 billion.
Thermo Fisher has undertaken several acquisitions in the past that includes Dionex Corporation and Phadia (completed in the third quarter). With Dionex, the company has strengthened its position in chromatography offering. Excluding the acquisition of Dionex, revenues increased 9% in the reported quarter with a 4% rise from favorable foreign currency and 1% increase from acquisitions other than Dionex.
The company also made two strategic acquisitions over the recent past – Sterilin (a leading provider of plastic laboratory consumables in the UK) and Trek Diagnostic Systems (provides microbiology solutions including blood culture, micro-organism identification and antibiotic susceptibility testing products). Banking on the acquisition of Phadia, which is a leading player in allergy and autoimmunity diagnostics, Thermo Fisher would strengthen its foothold in the high-growth Specialty Diagnostics market.
Emerging markets displayed strong growth in the second quarter, maintaining the first quarter trend. The company recorded double-digit growth across all its emerging markets such as China, India, Korea and Brazil. These continue to be the fastest growing regions and the company has experienced healthy growth in several market segments. The company expects to retain the growth momentum for the time being.
Thermo Fisher’s business depends heavily on general economic conditions. Following the recent debate regarding debt ceiling in the US and potential control on discretionary spending, further cuts in the government's budget could hamper the company’s top line. Moreover, many countries in Europe are also going through tough times that might impact their academic budgets.
During the reported quarter, Thermo Fisher recorded higher prices for some of its inputs, including plastic resins and raw steel. Although the company has taken some steps including raising product prices and more efficient sourcing to tackle the inflationary pressure, margin has been impacted to some extent.
The pressure on margin might worsen further if the inflationary situation persists. The company also witnesses tough competition from players such as Life Technologies (LIFE) and Illumina (ILMN), among others.
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