We have reiterated our Neutral recommendation on Thermo Fisher Scientific (TMO) with a target price of $65.00. This was primarily based on the company’s strong performance in the international market, offset by our concerns over weak government and academic markets.
Maintaining Neutral Stance
Thermo Fisher has strong international operations and witnessed consistent growth in Asia-Pacific. As a part of Thermo Fisher’s plans to focus on Asia-Pacific, it opened a new factory in Suzhou, China, in November, thus bolstering the R&D infrastructure there. The company is also optimistic about the $2 billion addressable market in India, which holds long-term opportunities in industries like pharmaceutical health care, food safety and the environment.
Also, past acquisitions have added complementary technologies, expanded its presence in high-growth markets, and generated cost and revenue synergies, thereby increasing shareholders’ value. The most recent is the newest acquisition of One Lambda, which is likely to strengthen its foothold in the immensely potent transplant diagnostics market. We are encouraged by the company’s progress with respect to reducing manufacturing footprint.
However, the company has faced the brunt of weak government and academic markets. Many countries in Europe, grappling with debt burden, will likely curtail budgets based on the weak macroeconomic environment. Moreover, the company is exposed to fluctuations in foreign exchange.
Over the past 30 days, none of the 16 firms covering the stock made any estimate revision for the current fiscal implying they still hold similar views on the stock.
Other Stocks to Consider
While we prefer to remain on the sidelines on Thermo Fisher, other medical device stocks worth a look are Intuitive Surgical, Inc. (ISRG) and Pressure BioSciences, Inc. (PBIO). Both are Zacks #1 Rank (Strong Buy) stocks.
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