Here's Why You Should Add Hologic (HOLX) to Your Portfolio
Hologic, Inc. HOLX has been gaining from molecular diagnostics growth and strength in its Breast Health arm. The company’s robust bottom- and top-line growth in the fiscal first quarter 2021 is encouraging. However, downsides may result from foreign exchange headwinds and uncertainty regarding COVID-related revenues.
Over the past year, the Zacks Rank #2 (Buy) stock has surged 145.2% compared with 65.5% growth of the industry and 76.6% rise of the S&P 500.
The renowned provider of medical imaging systems and surgical products, catering to women’s healthcare needs, has a market capitalization of $18.56 billion. The company projects 15.4% growth for the next five years and expects to maintain strength in its business segments. The company surpassed estimates in each of the trailing four quarters, the average surprise being 54.30%.
Let’s delve deeper.
Impressive Q1 Fiscal 2021 Results: We are upbeat about Hologic’s better-than-expected earnings in first-quarter fiscal 2021. The company saw a rise in organic revenues despite the pandemic-led business disruptions, which is encouraging. Growth in Diagnostic revenues, led by improvements in Molecular Diagnostics, buoys optimism. Robust demand for COVID-19-related products and the ongoing recovery in other arms has enabled Hologic to provide a strong fiscal second-quarter outlook. Expansion in both margins looks encouraging as well.
Strong Segmental Growth: Hologic continues to grow in its core molecular diagnostics sub-segment, which accounted for 88.2% of total Diagnostics revenues in the fiscal first quarter. Molecular Diagnostics sales improved 448.7% at constant exchange rate or CER while Global revenues for molecular diagnostics increased 779.8%.
Hologic has also been making impressive progress in its Breast Health arm over the past few months. In this regard, the company launched SuperSonic MACH 20 ultrasound system in January 2021, expanding its ultrasound portfolio.
Focus on International Growth: We are optimistic about Hologic’s strong international growth. The company’s international sales have been a major catalyst over the past three years. During the first quarter of fiscal 2021, international revenues at the Diagnostics segment rose 256.3% at CER. Hologic is increasingly focusing on commercial infrastructure. Moreover, the company has been progressing impressively with respect to placement of Panther instruments across the globe.
However, Hologic has been facing foreign exchange headwinds. We are worried about the significant challenges the company faced owing to unfavorable foreign currency movement over the past few quarters.
Moreover, Hologic is one of the key players working to produce or have produced tests for COVID-19. Since the pandemic is bound to subside over time, the testing demand is also likely to significantly decline. This might deal a major blow to the company’s revenues.
Estimate Trend
Hologic has been witnessing a positive estimate revision trend for 2021. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 25.1% north to $8.81.
The Zacks Consensus Estimate for the company’s second-quarter fiscal 2021 revenues is pegged at $1.54 billion, suggesting 103.3% growth from the year-ago reported number.
Other Key Picks
A few other similar-ranked stocks from the broader medical space are Bioanalytical Systems, Inc. BASI, Cantel Medical Corp. CMD and ConforMIS, Inc. CFMS, each carrying a Zacks Rank #2. You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.
Bioanalytical Systems has a projected long-term earnings growth rate of 15%.
Cantel Medical has a projected long-term earnings growth rate of 19%.
ConforMIS has an estimated long-term earnings growth rate of 42%.
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