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Thermo Fisher (TMO) Up 4.5% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Thermo Fisher Scientific Inc. TMO. Shares have added about 4.5% in that time frame, underperforming the market.

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

Recent Earnings

Thermo Fisher reported better-than-expected fourth-quarter and full-year 2016 earnings results. Adjusted earnings per share (EPS) in the quarter came in at $2.41, exceeding the Zacks Consensus Estimate by 1.68% and ahead of the year-ago quarter figure by 13.6%.

On a reported basis, fourth-quarter EPS of $1.59 marked 6% year-over-year improvement.

Full-year adjusted earnings came in at $8.27 per share, 11.9% improvement from the year-ago number and 4% improvement from the Zacks Consensus Estimate. The year’s adjusted EPS remained within but close to the upper-end of the company provided guidance range of $8.19–$8.30 per share.

Revenues for the fourth quarter came in at $4.95 billion, up 6.5% year over year. However, it missed the Zacks Consensus Estimate of $4.98 billion by 0.6%.
The year 2016 registered revenues of $18.27 billion, up 8% compared to the year-ago number. However, this also failed to meet the Zacks Consensus Estimate of $18.29 billion. Moreover, the reported revenue figure remains within but close to the upper-end of the guidance range of $8.19–$8.30.

Quarter in Detail

As expected, organic revenue in the fourth quarter was flat year over year, negatively affected by four fewer selling days. Revenues rose 8% on the back of acquisitions. Total revenue was 1%, offset by currency translation.

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

Revenues from the Life Sciences Solutions Segment improved 10% year over year to $1.34 billion, while Analytical Instruments Segment sales grew 32% to $1.22 billion. Revenues from the Laboratory Products and Services Segment declined 3.3% to $1.76 billion, while the Specialty Diagnostics Segment recorded a drop of 3.6% to $834 million.

Gross margin of 48.6% during the fourth quarter was up 103 basis points (bps) year over year on 8.8% rise in gross profit. Adjusted operating margin expanded approximately 91 bps to 23.8% despite the company incurring 4.9% rise in selling, general and administrative expenses and 17.9% increase in research and development expenses.

The company exited the full-year 2016 with cash and cash equivalents of $786.2 million compared with $452.1 million at the end of the previous year. Full-year operating cash flow was $3.16 billion compared with the year-ago figure of $2.82 billion.

Guidance

The company has also provided its financial guidance for the full-year 2017.

In terms of revenues, the company expects to deliver revenues in the band of $19.38 billion and $19.62 billion in 2017, which would result in 6% to 7% growth over 2016. Thermo Fisher has also initiated its adjusted EPS guidance in the range of $9.06 and $9.24 (annualized growth rate of 10% to 12%).

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one downward revision for the current quarter.

VGM Scores

At this time, Thermo Fisher's stock has a nice Growth Score of 'B', however its Momentum is doing a bit better with an 'A'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

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

Based on our scores, the stock is suitable for momentum, value and, growth  investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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