Thermo Fisher Grows Globally; Affimetrix Synergy On Track

On Jun 20, 2016, we issued an updated research report on Thermo Fisher Scientific Inc. (NYSE:TMO) – scientific instrument maker and a world leader in serving science.

We currently await the integration and expected synergy from Affimetrix, the recently completed mega acquisition by Thermo Fisher. This buyout is expected to boost the company’s offering in the fast-growing flow cytometry market through an advanced antibody portfolio.

In genetic analysis, Affymetrix’s technologies should perfectly complement Thermo Fisher’s products in the targeted clinical and applied markets. The company expects this acquisition to generate attractive financial returns, including an accretion of 10 cents to its adjusted EPS in the first full year of the deal. Total synergy value is pegged at $70 million by the third year post completion of the deal, which comprises cost synergy of $55 million and adjusted operating income benefit of $15 million.

Additionally, the Life Technologies integration is progressing well and Thermo Fisher is on track to deliver revenue and cost synergy targets from the same. By year-end 2015, the company realized $130 million of incremental cost synergies, in line with its full-year target. Revenue synergies at the end of 2015 were $90 million, much faster than anticipated. This puts Thermo Fisher in a comfortable position to achieve its full-year 2016 targeted synergy to deliver $150 million in revenue.

Thermo Fisher has carried out multiple acquisitions in the past that have added complementary technologies, expanded its presence in high-growth markets, and generated cost and revenue synergies, thereby creating shareholder value. Apart from boosting revenue accretion, these deals have historically benefited the company’s operating margin while also resulting in tax synergies.

Thermo Fisher boasts strong international operations and has witnessed consistent growth in the Asia-Pacific and emerging markets. The company plans to continue strengthening its foothold in emerging markets, such as China and India, and translate this success to other high-priority opportunities in regions such as South Korea, Russia and Brazil. In the last reported quarter of 2016, standout contributors were China and India.

However, economic uncertainties and currency headwinds continue to act as major dampeners. Thermo Fisher currently estimates unfavorable foreign exchange to have a negative impact on its top- and bottom-line performance even in 2016, although to a lesser degree compared to 2015.

The stock currently carries a Zacks Rank #3 (Hold).

Key Picks in the Sector

Some top-ranked medical instrument stocks worth a look are CryoLife Inc. (NYSE:CRY) , Masimo Corporation (NASDAQ:MASI) and Mesa Laboratories Inc. (NASDAQ:MLAB) . All the three stocks sport a Zacks Rank #1 (Strong Buy).