Thermo Fisher Scientific (TMO) has completed the sale of its two laboratory-testing services businesses – Athena Diagnostics and Lancaster Laboratories, in two separate transactions. These two businesses contributed 11 cents to the company’s adjusted EPS in 2010. Thermo Fisher will provide an updated 2011 guidance in the second quarter.
Earlier, in February 2011, the company decided to sell Athena Diagnostics to leading diagnostics player Quest Diagnostics (DGX) for $740 million. Athena, with $110 million in revenues in 2010, provides diagnostic tests for neurological and other diseases, with an emphasis on gene-based tests.
For the last few years, Quest has been strengthening its foothold in the esoteric testing market. Gene-based and esoteric testing now accounts for 22% of the company’s total revenues in 2010, up from 9% in 2000. Although Quest has been witnessing a decline in revenues derived from anatomic pathology, the company recorded a 3% growth of gene-based and esoteric testing during the fourth quarter, driven primarily by sales to hospitals and specialist physicians.
The increase in esoteric testing was primarily driven by a more than 30% growth in Vitamin D testing, which is being increasingly used for a range of conditions such as osteoporosis, cancer, diabetes and heart disease.
Additionally, Thermo Fisher decided to sell its Lancaster Laboratories to Belgium based Eurofins Scientific for $200 million. Lancaster Laboratories, with $115 million of revenues in 2010, is a contract-testing laboratory providing analytical services for pharmaceutical, biopharmaceutical and environmental sciences customers.
Recommendation
A gradual improvement in the economic scenario along with its focus on potential markets and other strategies should drive Thermo Fisher’s top line in the forthcoming period.
Moreover, the company’s decision to align its business to focus on core areas is also encouraging. However, any kind of economic turbulence could negatively impact the company’s sales based on financial constraints and customers deferring their buying decisions.
We are currently Neutral on the stock, which also corresponds to a Zacks #3 Rank (Hold) in the short-term.
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