Here's Why You Should Invest in Hologic (HOLX) Stock Now
Hologic, Inc. HOLX is gaining from continued strength in GYN Surgical and Breast Health businesses. The company’s focus on international operations is encouraging. Strong solvency is an added advantage. However, stiff competition and currency headwinds do not bode well.
In the past six months, this Zacks Rank #2 (Buy) stock has gained 16.5% compared with a 17.9% growth of the industry and a 21.4% rise of the S&P 500.
The renowned medical device company has a market capitalization of $19.29 billion. Its earnings in second-quarter fiscal 2023 surpassed the Zacks Consensus Estimate by 20.5%.
Let’s delve deeper.
Factors at Play
Strength in GYN Surgical: Over the past few years, the GYN Surgical business has transformed to the most profitable division of Hologic on a percentage basis. It is banking on new leadership, strong strategic execution of new commercial models and new product launches.
In second quarter, GYN Surgical grew more than 25% driven by strong contributions from hysteroscopic portfolio of MyoSure, the Fluent Fluid Management System and NovaSure. HOLX is encouraged by yet another strong quarter for its latest NovaSure iteration, NovaSure V5. The laparoscopic portfolio continues to build momentum and is growing into a larger driver for the division.
Strength in Breast Health: Hologic has been making impressive progress in its Breast Health arm in recent time. The company is currently focusing on expanding its strategy to diversify business across the patient continuum of care. It has also launched new software products based on its investments in artificial intelligence and has strengthened its interventional franchise via Brevera relaunch.
During fiscal second quarter, the Breast Health segment returned to growth, posting 25.7% rise.
Focus on International Operations: According to Hologic, global expansion will be a critical element of its growth strategy over the long term. While many of its best-in-class products command a leading share in the domestic market, they hold a disproportionately low market share internationally, indicating huge untapped potential.
HOLX’s international sales have been a major catalyst over the past three years with the molecular diagnostics business being a significant driver. Hologic is increasingly focusing on commercial infrastructure. It has been progressing impressively with respect to the placement of Panther instruments across the globe.
Strong Solvency and Capital Structure: Hologic ended second-quarter fiscal 2023 with cash and cash equivalents of $2.58 billion compared with $2.34 billion at the end of first-quarter fiscal 2023. Total long-term debt (including the current portion) was $2.79 billion at fiscal second-quarter end compared with $2.80 billion at the end of fiscal first quarter.
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Although the quarter’s total debt was higher than the cash and cash equivalent level, we may note that Hologic has a short-term payable debt of $26 million on its balance sheet. This can be treated as a positive for HOLX amid the ongoing economic downturn, as it is holding sufficient cash for debt repayment.
Downsides
Foreign Exchange Headwinds: We remain worried about the significant challenges Hologic has been facing due to unfavorable foreign currency impact. This has been affecting HOLX’s overall performance in the past few quarters.
Competitive Landscape: Hologic operates in a highly competitive industry. Its mammography, related products and subsystems compete on a worldwide basis with products offered by a number of competitors including General Electric Company, Siemens, Koninklijke Philips NV or Philips, Planmed Oy or Planmed, Agfa-Gevaert N.V.or Agfa, Carestream Health, Inc., FUJIFILM Holdings Corporation or Fuji, I.M.S. and Toshiba Corporation.
Estimate Trends
In the past 90 days, the Zacks Consensus Estimate for Hologic’s fiscal 2023 earnings has been moved 3.9% north to $3.89 per share.
The Zacks Consensus Estimate for HOLX’s fiscal 2023 revenues is pegged at $4.01 billion, suggesting a 17.6% fall from the year-ago reported number.
Other Stocks to Consider
A few other top-ranked stocks in the broader medical space are Merit Medical Systems, Inc. MMSI and Boston Scientific Corporation BSX and CONMED CNMD
Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Merit Medical has gained 60.2% compared with the industry’s 21.3% rise over the past year.
Boston Scientific, currently holding a Zacks Rank #2, has an estimated long-term growth rate of 11.5%. BSX’s earnings beat estimates in two of the trailing four quarters and missed twice, the average surprise being 1.9%.
Boston Scientific has improved 50.1% against the industry’s 19.2% decline over the past year.
CONMED has an estimated long-term growth rate of 19.4%. The company’s earnings surpassed estimates in two of the trailing four quarters, missed once and met in another, delivering a negative average surprise of 10.54%.
CNMD’s shares have risen 54.2% year to date compared with the industry’s 21.3% growth.
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