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Why Leerink Swann Lowered Its 2018 Estimates for TMO Stock

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Recommendation update

On December 4, 2017, Leerink Swann reaffirmed its “outperform” rating on Thermo Fisher Scientific (TMO) stock. However, it decreased its target price on TMO stock from $216.00 per share to $200.00 per share.

On the day, TMO stock fell ~5.3%. The Vanguard Total Stock Market ETF (VTI) fell 0.13% on the same day. VTI has ~0.28% of its total portfolio in TMO stock.

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Reason behind the target price decrease

The announcement that Amazon (AMZN) would enter the healthcare industry caused a stir in the market and the analysts became wary of near-term industry competition. Leerink also showed concern about this development. The decrease in target price was due to the estimated risk in the company’s laboratory supplies business.

According to Leerink Swann analyst Puneet Souda, the firm lowered its 2018 and 2019 revenue estimates for Thermo Fisher Scientific by 1.0% and 2.0%, respectively. Leerink Swann reduced its EPS estimates for TMO by 1.0% and 4.0% for 2018 and 2019, respectively.

According to Souda, “Contrary to our prior view, Amazon Business has successfully moved to eliminate barriers, provide valued services, and drive adoption in a premier West Coast university account with ~$20M direct spend for Fisher lab products annually among its $2B-$2.5B spend on products/supplies, disbursement, and services.”

Leerink Swann estimates Thermo Fisher Scientific’s 4Q17 EPS (earnings per share) to come in at $2.64 and its fiscal 2017 EPS to reach $9.33. For fiscal 2018, its EPS estimate stands at $10.38. For 1Q18 and 4Q18, Leerink estimates that Thermo Fisher Scientific could register EPS of $2.36 and $2.81, respectively.

Leerink Swann also provided estimates for TMO’s fiscal 2019 earnings. For fiscal 2019, the firm estimates Thermo Fisher Scientific to register EPS of $11.24. Its estimated earnings per share for 1Q19, 2Q19, and 3Q19 were $2.62, $2.82, and $2.83, respectively.

Leerink Swann’s recommendations for competitors

On December 4, 2017, Leerink Swann gave a “buy” rating on Agilent Technologies (A). Align Technology (ALGN) has a “buy” recommendation from Leerink Swann with a target price of $75.00 per share. The research firm provided a “buy” rating to Illumina stock on October 23, 2017.

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