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Hologic (HOLX) Up 13.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Hologic (HOLX). Shares have added about 13.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Hologic due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Hologic's Q4 Earnings Meet Estimates

Hologic reported fourth-quarter fiscal 2019 adjusted earnings per share of 65 cents, up 12.1% year over year. The reported figure was in line with the Zacks Consensus Estimate.

On a GAAP basis, the company’s earnings of 15 cents per share reflect a 16.7% drop from the year-ago quarter.

For fiscal 2019, adjusted earnings came in at $2.43, up 8.9% from the year-ago figure. However, the metric missed the consensus mark by a penny.

Revenues in Detail

Revenues grossed $865.8 million in the reported quarter, up 6.4% year over year (up 7.3% at constant exchange rate or CER). The metric beat the Zacks Consensus Estimate of $843.30 million, by 2.7%.

For fiscal 2019, total revenues were $3.37 billion, up 4.6% from the year-ago tally. Moreover, the figure surpassed the Zacks Consensus Estimate by 0.6%.

Excluding the divested Blood Screening business, total revenues in the fourth quarter came in at $849.1 million, up 6.1%year over year and 6.9% at CER.

Geographically, revenues in the United States rose 6.7% year over year to $656.2 million in the quarter. International revenues were up 5.7% (up 9.2% at CER) to $209.6 million as well, primarily on strong contributions from the Breast Health, Molecular Diagnostics and GYN Surgical businesses.

Segments in Detail

Revenues at the Diagnostics segment (excluding the divested Blood Screening business) rose 5.1% year over year (up 6.1% at CER) to $290.1 million in the quarter under review with Molecular Diagnostics being a major driver. Molecular Diagnostics revenues of $172.1 million climbed 8.9% (up 9.8% at CER), marking the fourth consecutive quarter of double-digit constant currency growth despite a challenging prior-year comparison.

However, Cytology and Perinatal revenues of $118 million were flat year over year (up 1% at CER).

Revenues at the Breast Health segment increased 6.3% (up 7.1% at CER) to $342.6 million. Domestic sales drove Breast Health growth in the quarter with 6.4% revenue rise year over year, whereas outside the United States, Breast Health sales climbed 9.4% (at CER), primarily on the company’s focus on rising product sales.

Revenues at the GYN Surgical business grew 6.6% (up 7.3% at CER) to $114.5 million, whereas Medical Aesthetic business revenues of $76.9 million reflect an 8.9% uptick (up 10.3% at CER) in the reported quarter.

Revenues at Skeletal Health grew 2.6% (up 3.7% at CER) to $ 25 million.

Operational Update

In the fiscal fourth quarter, Hologic’s adjusted gross margin contracted 19 basis points (bps) to 61.5% primarily due to higher manufacturing costs, an adverse product sales mix, trade tariffs in China and stronger U.S. dollar.

The company witnessed a 6.2% and 14.6% hike in selling and marketing, and research and development expenses, respectively, ($141.8 million and $60.4 million). However, general and administrative expenses contracted 29.1% to $83.7 million.

Adjusted operating expenses amounted to $286 million, down 6% year over year. Also, adjusted operating margin expanded 419 bps to 28.4%.

Financial Update

Hologic exited fiscal 2019 with cash and cash equivalents of $601.8 million compared with $666.7 million at the end of fiscal 2018. Total long-term debt was $2.78 billion in the reported quarter, compared with $2.70 billion at the end of the year-ago quarter.

Full-year net cash provided by operating activities was $649.5 million compared with $732.9 million a year ago.

Guidance Issued

Hologic has issued first quarter and fiscal 2020 guidance. The company expects adjusted revenues for fiscal 2020 in the range of $3.45-$3.50 billion (a projection of 3-4.5% growth at CER). The Zacks Consensus Estimate for revenues stands at $3.48 billion, which lies within the guided range.

The company envisions adjusted earnings of $ 2.60-$2.65 for fiscal 2020. The consensus mark for the metric is pinned at $2.64, which is within and close to the high-end of the estimated range.

For first-quarter fiscal 2020, Hologic anticipates adjusted revenues of $835-$850 million, indicating 1.2-3% growth at CER. The consensus estimate for revenues stands at $ 857.9 million, above the projected range.

Adjusted earnings is estimated at 59-61 cents for first-quarter fiscal 2020. The Zacks Consensus Estimate for the same is pegged at 64 cents, above the company’s expected range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Hologic has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Hologic has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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