Recently, we reiterated our Neutral recommendation on Hologic (HOLX) with a target price of $16.00.
During the third quarter of fiscal 2011, Hologic reported an adjusted EPS of 32 cents, in line with the Zacks Consensus Estimate and 2 cents above the year-ago quarter. Revenues were $451.1 million, an increase of 7.2% compared to the prior-year quarter and higher than the Zacks Consensus Estimate of $447 million.
Hologic’s four segments – Breast Health, Diagnostics, Gyn Surgical and Skeletal Health recorded robust growth of 8.4% ($205.2 million), 4.4% ($143.4 million), 10.9% ($79.4 million) and 3.2% ($23.1 million), respectively. The growth of Diagnostics is encouraging as this business had been recording declining revenues over the past few quarters.
In February 2011, Hologic received FDA approval for its Selenia Dimensions 3D mammography system, which was followed by its launch in the US. The number of Dimensions systems sold (both 2D and 3D) continues to increase and represents an increasing proportion of total mammography revenue (57% in the reported quarter versus 47% in the second and 37% in the first quarter).
Sales of the 3D system are in its initial stages in the US, which are expected to increase gradually. However, significant sales growth is not expected to begin before mid-fiscal 2012.
Although adoption of the products will come about gradually, according to company estimates initially in the first two years around 500-700 of these systems would be sold. Going forward, the Dimensions portfolio is expected to be an important growth driver for the Breast Health segment.
Hologic recorded 23% of its revenues during the reported quarter from international operations. The company has been building its international infrastructure and management resources, particularly in emerging markets like China, Latin America, Middle East and Eastern Europe.
With the intention of expanding distribution and manufacturing capabilities in the international market, Hologic recently acquired TCT (a distributor of medical products including Hologic’s ThinPrep pap tests and others) for $135 million and Healthcome Technology (manufacturer of mammography systems) for $16.9 million, both based in China.
China is Hologic’s largest ThinPrep market outside the US and this is entirely due to the efforts of TCT. With this acquisition, the company would be able to better leverage its entire product portfolio and realize higher margins and in-customer pricing.
However, the economic uncertainty is taking a toll on Hologic as high unemployment is forcing many people to defer their physician visits. The company derived about 24% of its revenues from capital equipment.
As a result, the company is exposed to lower hospital spending exacerbated by economic challenges. Moreover, the company faces tough competition from players such as Conceptus (CPTS), Laboratory Corporation of America Holdings (LH), among others.
CONCEPTUS INC (CPTS): Free Stock Analysis Report
HOLOGIC INC (HOLX): Free Stock Analysis Report
LABORATORY CP (LH): Free Stock Analysis Report
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