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Hologic (HOLX) Divests Cynosure to Focus on Women's Health

Zacks Equity Research

Hologic, Inc. HOLX recently completed the earlier-announced divestiture of the Cynosure medical aesthetics business. Per the terms of the deal, the company sold Cynosure to Clayton, Dubilier & Rice for a total purchase price of $205 million in cash. After certain adjustments, net receivables in cash were $142 million, at the closing of the transaction.

Per the terms of the agreement, roughly 825 employees will be transferred with the Cynosure business.With the divestment, the company expects to witness favorable outcomes, as Cynosure had been significantly underperforming since its acquisition in March 2017.

Rationale Behind the Divestment

Hologic’s management believes that divesting the medical aesthetics business will enable it to focus more on other core business segments, including Breast Health, which currently accounts for more than 38% of total revenues.

Meanwhile, the company aims at focusing on smaller tuck-in deals, thereby strengthening its core franchises.

Financial Impact of the Deal

As stated by the company earlier, this transaction is expected to result in significant additional non-cash impairment charges, which will be reflected in GAAP results for fourth-quarter fiscal 2019.

Hologic expects additional pre-tax impairment charges of $155-$185 million for fourth-quarter fiscal 2019 to reduce the carrying value of the asset group to its fair value. Following this, the asset group is expected to meet the desired criteria by first-quarter fiscal 2020.

However, these adjustments could result in further expenses. Additionally, the loss from the divestment is expected to generate a cash tax refund of $300 million in calendar year 2022.

In fiscal 2020, the full impact of the latest divestment and its accelerated share repurchase program are expected to be reflected in the form of raised earnings per share on both GAAP and non-GAAP basis.

Price Performance

The company’s shares have risen 36.4% in the past year compared with the industry’s rally of 28.7%.

Zacks Rank & Key Picks

Currently, Hologic carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader medical space are Haemonetics Corporation HAE, National Vision Holdings, Inc. EYE and Medtronic plc MDT.

Haemonetics, currently carrying a Zacks Rank #1 (Strong Buy), has a projected long-term earnings growth rate of 13.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Vision’s long-term earnings growth rate is estimated at 17.8%. The company currently carries a Zacks Rank #2 (Buy).

Medtronic’s long-term earnings growth rate is estimated at 7.4%. It currently carries a Zacks Rank #2.

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