Hologic (HOLX) Turns Around: Should You Invest Now?

On Dec 4, 2014, we issued an updated research report on Hologic Inc. (HOLX).

This notable provider of premium diagnostic products, medical imaging systems and surgical products reported better-than-expected fourth-quarter and fiscal 2014 financial results on Nov 5.

Adjusted earnings per share of 43 cents in the quarter beat the Zacks Consensus Estimate of 37 cents by 16.2%. Adjusted earnings also exceeded the year-ago number by a solid 10.3% and surpassed the company's fourth quarter guidance of 36–37 cents. Year-over-year top line improvement coupled with an encouraging operational performance contributed to this better-than-anticipated bottom-line growth.

Likewise, revenues increased 6.2% year over year to $660.6 million, comfortably beating the Zacks Consensus Estimate of $636 million. This improvement was driven by revenue growth across all its four segments in the reported quarter. The top line also topped the company's guidance of $630–$640 million.

Moreover, bolstered by a strong fourth quarter, Hologic provided promising financial outlook for fiscal 2015. The company expects adjusted earnings per share in range of $1.50 to $1.54, reflecting year-over-year growth of 3%–5.5%. Likewise, Hologic expects year-over-year growth of 2%–3.5% in total sales in the next fiscal, excluding the impact of foreign exchange.

Notably, in the quarter, the company returned to positive top-line growth in its Diagnostic segment in the period, after experiencing negative growth for the past three consecutive quarters.

We are also upbeat on the positive growth delivered at Hologic's GYN Surgical segment in the last two consecutive quarters, which marked a recovery from the disappointing results obtained prior to that. The improvement in the fourth quarter was primarily driven by strong double-digit growth in Hologic's global MyoSure franchise as well as single-digit growth of NovaSure in the international market.

Notably, Hologic's international business, which had been underperforming over the past few quarters, also showed a turnaround in the fourth quarter. Hologic's blood screening business was primarily accountable for this upside. It reported positive growth in line with Hologic's expectation owing to the Japanese Red Cross deal, thereby overweighing the softness observed in the business on the domestic front. Additionally, the company has been building its international infrastructure and fortifying management resources, particularly in the emerging markets of China, Latin America, the Middle East and Eastern Europe. We remain confident about the company's long-term potential in the international market.

However, we are worried about the restricted capital spending environment, economic uncertainties in Europe and increasing pricing pressure. Still, given the increasing uptake of Hologic's technically advanced solutions, Hologic arguably remains a leader in the field of women's health. The stock currently retains a Zacks Rank #3 (Hold).

Key Picks from the Sector

Better-ranked medical instrument stocks such as AngioDynamics Inc. (ANGO), EnteroMedics Inc. (ETRM) and Fluidigm Corporation (FLDM) are also worth reckoning. While AngioDynamics sports a Zacks Rank #1 (Strong Buy), both EnteroMedics and Fluidigm hold a Zacks Rank #2 (Buy).

Read the Full Research Report on HOLX
Read the Full Research Report on ANGO
Read the Full Research Report on FLDM
Read the Full Research Report on ETRM


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