U.S. Markets closed

How Financially Strong Is Hologic, Inc. (NASDAQ:HOLX)?

Simply Wall St

Hologic, Inc. (NASDAQ:HOLX), a large-cap worth US$13b, comes to mind for investors seeking a strong and reliable stock investment. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. But, its financial health remains the key to continued success. This article will examine Hologic’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into HOLX here.

View our latest analysis for Hologic

Does HOLX Produce Much Cash Relative To Its Debt?

HOLX's debt levels have fallen from US$3.4b to US$3.1b over the last 12 months , which also accounts for long term debt. With this debt repayment, HOLX currently has US$314m remaining in cash and short-term investments , ready to be used for running the business. On top of this, HOLX has produced US$668m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 21%, signalling that HOLX’s debt is appropriately covered by operating cash.

Can HOLX meet its short-term obligations with the cash in hand?

With current liabilities at US$1.1b, it seems that the business has been able to meet these obligations given the level of current assets of US$1.4b, with a current ratio of 1.3x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Medical Equipment companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.

NasdaqGS:HOLX Historical Debt, April 17th 2019

Can HOLX service its debt comfortably?

Hologic is a highly levered company given that total debt exceeds equity. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. However, since HOLX is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

HOLX’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. Keep in mind I haven't considered other factors such as how HOLX has been performing in the past. I suggest you continue to research Hologic to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for HOLX’s future growth? Take a look at our free research report of analyst consensus for HOLX’s outlook.
  2. Valuation: What is HOLX worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether HOLX is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.