Recently, Zacks Investment Research upgraded Hologic Inc. (HOLX) to a Zacks Rank #2 (Buy).
Why the Upgrade?
The company reported better-than-expected third-quarter fiscal 2014 results with adjusted earnings per share (EPS) and revenues exceeding the respective Zacks Consensus Estimate. Notably, the company's GYN Surgical segment returned to growth in the last reported quarter after several disappointing ones.
Revenues rose 1% year over year to $632.6 million, beating the Zacks Consensus Estimate of $621 million. However, adjusted earnings of 37 cents per share, although ahead of the Zacks Consensus Estimate by 3 cents, declined 2.6% from the year-ago tally of 38 cents per share.
Buoyed by stronger-than-expected third-quarter results, Hologic raised its fiscal 2014 outlook for both revenues and earnings. The company now expects total revenue in the range of $2.50–$2.51 billion, higher than the earlier guided $2.46–$2.49 billion. The Zacks Consensus Estimate of $2.5 billion exceeds the upper end of the guidance range.
Hologic also upgraded its adjusted EPS guidance to the range of $1.44–$1.45 per share, higher than the earlier EPS expectation of $1.37–$1.40. The current Zacks Consensus Estimate of $1.44 coincides with the lower end of the expected range.
In the quarter, the company achieved growth in 3D mammography systems along with consistent service revenue growth from the expanding installed base of digital mammography systems. The company is also perfectly on track to meet its goal of installing at least 500 3D mammography systems in the U.S. in fiscal 2014.
Currently, Hologic aims at sustaining top- and bottom-line organic growth, despite facing tough challenges like a decline in revenues from the core segment, ongoing shift to the 3D tomosynthesis technology, economic uncertainties in Europe, slower sales cycles and increasing pricing pressure.
Accordingly, we observed a rise in the Zacks Consensus Estimate for earnings in 2014 and 2015 over the last 60 days. It increased 3.6% to $1.45 in 2014 as 10 of 11 estimates moved up while the same rose 4% to $1.55 for 2015 as 10 of 12 estimates moved north. The expected long-term growth rate for the stock is 7.9%.
Key Picks from the Sector
Medical instrument stocks such as Alphatec Holdings, Inc. (ATEC), ERBA Diagnostics, Inc. (ERB) and RTI Surgical Inc. (RTIX) are also expected to do well. All three sport a Zacks Rank #1 (Strong Buy).
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