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Hologic Reiterated at Neutral

Zacks Equity Research

On Sep 18, 2013, Zacks Investment Research reaffirmed its long-term Neutral recommendation on Hologic Inc. (HOLX) following mixed results in the third quarter of fiscal 2013. This leading player in the women’s health market carries a Zacks Rank #3 (Hold).

Why Neutral?

On Aug 5, Hologic reported adjusted EPS of 38 cents, beating the Zacks Consensus Estimate by a penny and improving year over year by 3 cents. Revenues shot up 33.2% year over year to $626.1 million. Despite robust growth, the top line trailed the Zacks Consensus Estimate of $629 million.

Amid looming headwinds such as lower sales of legacy products, uncertainty in the European market, and increasing pricing pressure, Hologic slashed its guidance for fiscal 2013. At present, the company envisages to report adjusted revenues of $2,505−$2,515 million, compared with the earlier guidance of $2,530−$2,550 million. The updated guidance represents growth of 24−25%. The company also lowered its adjusted EPS guidance to $1.46−$1.47 from $1.54−$1.56 guided previously.

Despite the shortfall in revenues and lower revision of fiscal guidance, Hologic witnessed several upsides such as higher uptake of tomosynthesis, acquisition synergies and competitive wins in key markets.

Year-over-year sales upside was primarily driven by solid Diagnostics business on the back of the Gen-Probe product package. Moreover, Breast Health clambered 8.8% of revenues. In this regard, we take note of the recent (Jul 2013) non-exclusive tie-up of Hologic with one of its leading lab customers, Quest Diagnostics (DGX). According to Hologic, this partnership is the outcome of revenue synergies that started generating from the Gen-Probe acquisition. The company strongly believes that as a standalone entity, Hologic could have never achieved such a big alliance.

While the company missed the sales expectations in the last quarter on account of looming headwinds, the guidance cut for fiscal 2013 underlines that the situation is not expected to improve in the near term. Thus, we prefer to remain on the sidelines for Hologic.

Stocks to Consider

Medical sector stocks such as Affymetrix Inc. (AFFX), carrying a Zacks Rank #1 (Strong Buy) warrant a look. We are also optimistic about Given Imaging Ltd. (GIVN) that holds a Zacks Rank #2 (Buy).

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