Will Thermo Fisher's (TMO) Q1 Earnings Surprise Investors? - Analyst Blog

Last quarter, the company had delivered a 2.58% positive surprise leading to a trailing four-quarter average beat of 4.61%. Let's see how things are shaping up for this announcement.

Factors at Play

According to Thermo Fisher, it is outperforming expectations in terms of the Life Technologies integration and is making considerable progress with respect to the execution of its plans. In fact, we are encouraged to know that Thermo Fisher is ahead of its original synergy target for the year.

At the end of 2014, the company had realized $115 million of synergy benefits, higher than the last declared expected synergy of $110 million and significantly up from the original promise of $85 million. The company is also confident of its overall three-year synergy target which had been raised from $300 million to $350 million at the analyst meeting held in May this year.

Despite a difficult foreign exchange environment, Thermo Fisher projects a strong operating performance in 2015 which is expected to start reflecting from the first quarter itself. In the first quarter of 2015, reported revenue growth is estimated in the range of 1% to 3% (organic growth of 2% to 4%). Moreover, adjusted EPS growth is projected between 2% and 6% with 15 basis points (bps) of adjusted operating margin expansion.

In 2015, acquisitions, net of divestitures, are expected to contribute about 50 bps to the company’s reported revenues. Organic revenue growth midpoint remains at 4%, which includes Life Technologies after Feb 3, 2015 – the completion of one whole year from the close date.

Thermo Fisher is expecting slightly slower growth in pharma and biotech (in the mid to high single digits) and slightly stronger growth in academic and government (in the low single digits). The diagnostics and healthcare as well as industrial and applied segments are projected to remain consistent with 2014 levels.

However, despite a slight mix shift by end market as a result of the addition of Life Sciences Solutions in 2015 to organic growth calculation from February onward, Thermo Fisher is not expecting any significant changes in the end market growth assumptions compared to 2014.

The company continues to face challenging growth-hindering headwinds like a deteriorating economic scenario in the international market, exposure to fluctuating foreign currency and tough competition from potent rivals.

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 ESPand 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 has an earnings ESP of -1.24%. That is because the Most Accurate estimate lies at $1.59, while the Zacks Consensus Estimate is pegged higher at $1.61.

Zacks Rank: Thermo Fisher has a Zacks Rank #3 (Hold) which increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise.

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

Stocks to Consider

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

Laboratory Corp. of America Holdings LH has an earnings ESP of +0.61% and a Zacks Rank #1 (Strong Buy). LabCorp will report its first-quarter 2015 earnings on Apr 27.

Illumina Inc. ILMN has an earnings ESP of +1.39% and a Zacks Rank #3 (Hold). Illumina is expected to report its first-quarter earnings on Apr 21.

Myriad Genetics Inc. MYGN has an earnings ESP of +2.50% and a Zacks Rank #2 (Buy). Myriad Genetics is set to report its second quarter fiscal 2015 earnings on May 5.