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Here's Why You Should Add Hologic (HOLX) to Your Portfolio

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·4 min read
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Hologic, Inc. HOLX has been gaining from a slew of buyouts. Its slew of regulatory approvals has also been impressive. Its robust preliminary results for first-quarter fiscal 2021 buoy optimism. However, downsides may result from a stiff competitive landscape and foreign exchange headwinds.

Over the past year, the Zacks Rank #1 (Strong Buy) stock has gained 40.1% compared with 22.4% growth of the industry and 14.9% 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 $19.56 billion. The company projects 17.4% growth for the next five years and expects to maintain strength in its business segments. The company surpassed estimates in three of the trailing four quarters and broke even in one, the average surprise being 45.89%.

Let’s delve deeper.

Impressive Q1 Fiscal 2021 Results: We are upbeat about Hologic’s recently released preliminary results for first-quarter fiscal 2021. The company’s projection of a reported revenue growth of 89.3% (86.5% at constant exchange rate) looks impressive. Further, organic revenues (or revenues excluding divestitures and the Acessa acquisition) are projected at a stupendous level of 104%, further buoying optimism on the stock.

Acquisitions: Hologic has, of late, been gaining from a slew of buyouts. This raises our optimism on the stock. The recently completed acquisition of SOMATEX Medical Technologies GmbH, a well-known name in the biopsy site markers and localization technologies space, looks encouraging. Hologic also announced its plans to acquire Biotheranostics, Inc., a privately held commercial-stage company providing molecular diagnostic tests for breast and metastatic cancer. These buyouts are expected to significantly boost Hologic’s business across the globe.

Regulatory Approvals: We are upbeat about Hologic’s recent regulatory clearances. The company received the FDA’s approval for its Genius AI Detection technology. In November, Hologic received the FDA’s approval for its diagnostic claim for its HIV-1 (human immunodeficiency virus type 1) viral load monitoring assay. The same month, the company received the CE Mark for its new Genius Digital Diagnostics System.

In October, Hologic announced the amendment of the FDA’s Emergency Use Authorization that was initially received for its Aptima SARS-CoV-2 assay (that runs on the company’s fully automated Panther system) in May.

However, downsides might result from Hologic’s operation in a highly competitive industry, which includes giants like Siemens. The FDA’s decision to re-classify FFDM devices to class II from class III makes it easier for all medical devices companies to introduce similar products in the market. Subsequently, the approval process for class II devices will require 510(k) clearance, rather than the lengthy premarket approval application. This will enable easier approval in the United States, thus intensifying competition among medical device companies.

Hologic faces significant business challenges owing to unfavorable foreign currency impacts. This persistent issue has been adversely affecting the company’s overall performance over the past few quarters.

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 65.6% north to $7.17.

The Zacks Consensus Estimate for first-quarter fiscal 2021 revenues is pegged at $1.32 billion, suggesting 55.7% growth from the year-ago reported number.

Other Key Picks

A few other top-ranked stocks from the broader medical space are Omnicell, Inc. OMCL, IDEXX Laboratories, Inc. IDXX and Patterson Companies, Inc. PDCO.

Omnicell’s long-term earnings growth rate is estimated at 16%. The company presently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

IDEXX’s long-term earnings growth rate is estimated at 15.8%. It currently carries a Zacks Rank #2 (Buy).

Patterson Companies’ long-term earnings growth rate is estimated at 11.1%. The company presently carries a Zacks Rank #2.

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