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Thermo Fisher's Unit Sale May Not Ail Specialty Diagnostics

Zacks Equity Research

In line with its expected time of conclusion, Thermo Fisher Scientific Inc. TMO recently announced the completion of its previously-declared sale of its Anatomical Pathology business. The arm, as was notified in January 2019, has been sold to PHC Holdings Corporation, a global innovator in healthcare solutions for approximately $1.14 billion in cash.

The Anatomical Pathology business of Thermo Fisher would fall under its Specialty Diagnostics segment that serves customers in healthcare and clinical laboratories. Last year, this segment contributed more than 15% to the company’s top line. Over the past year, this segment had steadily generated positive revenue growth. The Anatomical Pathology subsegment alone generates approximately $350 million in annual revenues.

Undoubtedly, this divestiture is going to put pressure on the company's earnings performance. Thermo Fisher currently expects the net dilution of this divestment to 2019 adjusted earnings per share to be approximately 10 cents.

Following the news of this divestment’s closure, the stock slid 0.3% to close at $293.68 last Friday.

The Rest of Specialty Diagnostics Holds Potential

On a positive note, Thermo Fisher’s broader Specialty Diagnostics business is booming with huge potential at the moment. The company has received an FDA clearance for a new ImmunoCAP test for peanut allergies. This blood test is designed to help doctors better identify patients who are highly sensitive to a certain protein in peanuts that can cause severe allergic reactions. According to Thermo Fisher, this can be a game changer for patients in terms of appropriately managing their allergy and preventing a life-threatening event.

We are currently looking forward to Thermo Fisher’s five-year plan that outlines investments in innovation, healthcare and environment. Per the company, increasing growth scale in the emerging markets is a key competitive edge that fetches significant client wins. The company is also looking at expanding its manufacturing footprint to serve the local markets and capitalize on demand for Specialty Diagnostics.

Over the past three months, shares of Thermo Fisher have outperformed its industry. The stock has gained 6.9% compared with the industry’s 1.5% rise.

Zacks Rank & Other Key Picks

Thermo Fisher holds a Zacks Rank #2 (Buy). A few other top-ranked stocks in the broader medical space are DENTSPLY SIRONA XRAY, Penumbra PEN and CONMED Corporation CNMD, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

DENTSPLY’s long-term earnings growth rate is expected to be 11.5%.

Penumbra’s long-term earnings growth rate is projected at 21.5%.

CONMED’s long-term earnings growth rate is estimated at 13.3%.

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