Here's Why You Should Hold on to Hologic (HOLX) Stock for Now

Hologic, Inc. HOLX has been gaining from robust segmental and international growth. However, the company witnessed a massive escalation in product costs and operating expenses in the first quarter of 2020, which impacted its margins.

Over the past year, shares of the Zacks Rank #3 (Hold) company have outperformed its industry. It has gained 24.1% compared with 11.1% growth of its industry. Also, the company has outperformed the S&P 500’s 20.4% rally during the same period.

The renowned provider of medical imaging systems and surgical products, catering to women healthcare needs, has a market capitalization of $14.32 billion. The company projects 8.7% growth for the next five years and expects to maintain its strong segmental performance. Further, it surpassed earnings estimates in the first two of the trailing four quarters and broke even in the other two. The company delivered a positive surprise of 1.26%, on average.

Let’s delve deeper.

Q1 Results: We are upbeat about Hologic’s strong first-quarter 2020 results, with revenues surpassing estimates. Strong top-line growth was led by a solid year-over-year rise in core businesses like GYN Surgical and Molecular Diagnostics. The recent regulatory clearances for the Unifi Workspace reading solution and 3DQuorum artificial intelligence imaging technology in Breast Health bode well. Also, the acquisition of a controlling interest in SuperSonic Imagine started to contribute to the company’s top line.

Potential of Molecular Diagnostics: We are upbeat about the rising growth potential of the company’s core Molecular Diagnostics sub-segment. Global growth of the business was driven by a greater number of placements of fully-automated Panther system along with continued solid uptake of Aptima Women's health assay menu in more countries.

Outside the United States, increased Molecular Diagnostics sales were led by growth in core women's health tests; viral load assays, with a growing contribution from HIV in Africa; and Panther Fusion. Within the United States, sales growth was strong, reflecting increasing volumes and better patient care in established markets. Contribution from the legacy women's health assays for chlamydia, gonorrhea, HPV and Trichomonas as well as new vaginosis test, Panther Fusion and viral load assays drove segmental growth in the fiscal first quarter.

GYN Surgical’s Potential: The gradual transformation of the GYN Surgical business to the most profitable division of Hologic (on a percentage basis) — backed by new leadership, strong execution of new commercial models and product launches — instills optimism. The major growth drivers for the segment are strong market adoptions of MyoSure and NovaSure products along with launches like the Fluent Fluid Management System, Omni 3-in-1 Hysteroscope, Omni Lok cervical seal and Definity cervical dilator.

Downsides:

Foreign Exchange Headwinds: We remain concerned about the significant challenges Hologic have been facing, owing to unfavorable foreign currency impacts, which have been affecting its overall performance for the past few quarters.

Cost Woes: A continuous rise in costs and expenses is building pressure on margins of Hologic. In the reported quarter, it witnessed a contraction in the adjusted gross margin, which resulted mainly from disappointing sales in the divested Cynosure business, product and geographic sales mix, and a stronger U.S. dollar. Operating margin too contracted on an adjusted basis due to higher expenses.

Estimate Trend

Hologic is witnessing a negative estimate revision trend for 2020. Over the past 30 days, the Zacks Consensus Estimate for its earnings has moved 0.8% south to $2.62.

The Zacks Consensus Estimate for the company’s second-quarter 2020 revenues is pegged at $820.2 million, suggesting a 0.2% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are Perrigo Company plc PRGO, Hill-Rom Holdings, Inc. HRC and Myomo, Inc. MYO, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Perrigo Company has a projected long-term earnings growth rate of 2%.

Hill-Rom’s long-term earnings growth rate is estimated at 11.1%.

Myomo’s long-term earnings growth rate is estimated at 25%.

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Click to get this free report Hologic, Inc. (HOLX) : Free Stock Analysis Report Perrigo Company plc (PRGO) : Free Stock Analysis Report Hill-Rom Holdings, Inc. (HRC) : Free Stock Analysis Report Myomo, Inc. (MYO) : Free Stock Analysis Report To read this article on Zacks.com click here.