With talk about the sell-off of Thermo Fisher Scientific’s TMO shares by institutional investors and company insiders, market sentiment toward the company seems bearish. The stock has lost 12.7% in the past three months, and despite the company’s recent completion of a $1 billion share repurchase and several other positive developments, the recuperation might take a little time.

In the past three months, the stock has underperformed the broader industry’s 2.9% drop and the medical sector’s 9.8% decline. The S&P 500 has risen 8.5% in this period. Thermo Fisher also lagged behind two of its direct rivals, Hologic HOLX and Illumina ILMN throughout this time.

Thermo Fisher Underperforms Industry, Sector, S&P 500 & Peers

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What's Behind the Gloomy Scenario?

Going by a Market Beat article of December, a number of institutional investors recently made changes to their positions in TMO, with a few of them, like Tenere Capital LLC, lowering their stake in the company. Further, rumors are doing the rounds that insiders are selling stakes in the company. While there is no legitimate reason why insiders are on this selling spree, the action has however triggered the market.

This apart, investors might also be concerned about the company’s continuous decline in testing revenues due to the decline in COVID testing-related demand. In the third quarter of 2024, Thermo Fisher had the largest impact of the COVID roll-off in the Life Science Solutions. This might continue through the rest of the 2024.

Meanwhile, the industry-wide trend of difficult macroeconomic conditions in the form of geopolitical pressure leading to disruptions in economic activity, global supply chains and labor markets are creating a challenging business environment for companies like Thermo Fisher. International conflicts have increased cybersecurity risks on a global basis. Further, volatile financial market dynamics with a high interest rate scenario and significant volatility in price and availability of goods and services are putting pressure on the company’s profitability. Investors are concerned that with the sustained macroeconomic pressures, Thermo Fisher may struggle to keep its operating expenses in check.

Downwards Estimate Revision Trend for TMO

The earnings estimates for Thermo Fisher have slipped from $21.72 to $21.68 per share for 2024 over the past 60 days, with six downward revisions in contrast to three upward movements. For 2025, estimates have declined from $23.94 to $23.40 in two months following 11 downward revisions and no upward movement.

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Is This a Short-Lived Slump for Thermo Fisher?

Despite all the recent hiccups, TMO’s strong fundamentals and promising growth strategies are expected to bode well for the company’s long-term growth.

Particularly, we are encouraged by the company braving the ongoing tough economic conditions by utilizing the Practical Process Improvement (PPI) Business System, resulting in strong financial performance. During the third quarter, Thermo Fisher experienced a positive impact of the PPI business ensuring strong profitability and cash flow. 

Further, the company’s growth strategy has been bolstered by several recent product launches, including a pre-transplant risk assessment assay and the international CorEvitas Adolescent Atopic Dermatitis Registry in the third quarter. In December, the company announced the expansion of its CTS Detachable Dynabeads platform with two new launches. These are expected to enhance the company’s cell therapy development and production.

Thermo Fisher’s continuous efforts to prioritize its partnership with customers to drive innovation and improve patient care also bode well. During the third quarter, the company entered into a partnership with the National Cancer Institute for the myeloMATCH precision medicine umbrella trial within its clinical next-gen sequencing business. Earlier this year, Thermo Fisher advanced its partnerships in the Asia Pacific region.

Robust solvency is an added advantage. At the end of the third quarter, the company’s cash and cash equivalents and short-term investment were $6.65 billion. However, the company had $4.12 billion of current debt on its balance sheet, much lower than the cash and cash equivalent level.

We accordingly expect the recent market roars against the stock to be short-lived.

Discounted Valuation

In terms of valuation too, TMO’s forward 12-month price-to-earnings (P/E) is 22.99X, a discount to the broader industry’s average of 32.42X. The company is also trading at a significant discount to its rival Illumina (33.76X).

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Macro Issues Concern: Wait for a Better Entry Point

Thermo Fisher’s discounted valuation suggests that investors may be paying a lower price relative to the company's expected earnings growth. We are also impressed by the company’s solid execution of growth strategies, continued focus on optimizing business to drive sustainable profitability and strong solvency amid a challenging market for medical devices. However, growing geopolitical pressure and war situations around the Middle East and the continued increase in raw material and labor costs can dent the company’s profit. In such a scenario, TMO might find it hard to keep competitive prices. In addition, the still high interest rate environment remains a concern.

These limit this Zacks Rank #3 (Hold) stock’s near-term potential. For now, it might be prudent for investors to avoid buying the stock and monitor TMO’s upcoming results for a better entry point.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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