On Dec 14, 2015, we issued an updated research report on Massachusetts-based medical equipment manufacturer Hologic Inc. HOLX. The company develops medical imaging systems and surgical products, mainly focused on mammography systems for breast examination and osteoporosis assessment.
Hologic ended fiscal 2015 on a promising note, with both its top and bottom line exceeding the Zacks Consensus Estimate for the fiscal fourth quarter. The company’s improved operating cash flow figure, which reflects improvement in net income and working capital efficiencies, also buoys optimism.
Impressively, the company generated positive revenue growth at constant exchange rate (CER) in each of its businesses in both the domestic as well as the overseas market. Management was particularly upbeat about the fact that three of its four businesses delivered double-digit growth at CER during the quarter. Significantly, Hologic’s breast imaging product sales grew more than 20% overseas, despite the company holding low penetration rates and market share therein.
Moreover, on the domestic front, the company witnessed strong uptake of its Genius mammography exams in the reported quarter. Impressively, in the course of fiscal 2015, the company gained more than 300 basis points of share in the U.S. mammography market. Meanwhile, following weak performances across several quarters, Hologic’s molecular diagnostics business, for the first time, exhibited nominal growth in the international market, in the reported quarter.
Encouragingly, GYN Surgical’s growth in the fiscal fourth quarter represented Hologic’s third straight quarter of double-digit growth at CER and the best overall performance in the past several years. Buoyed by GYN Surgical’s recent rebound to positive growth, management expects its surgical business to grow in mid-to-high single digits in fiscal 2016. As of now, management expects further improvement in its financials going forward, as is evident from its optimistic guidance for fiscal 2016.
On the flip side, the annualization of the JRC contract in the fiscal fourth quarter is expected to adversely impact Hologic’s blood screening business in the upcoming quarters, which may continue in the long run as well. Further, management expects its fiscal 2016 financials to face a tough tax rate of 34%, which in turn might hamper the company’s growth for that fiscal. Alongside, unfavorable patent ruling and competitive headwinds continue to pose threats.
Currently, Hologic carries a Zacks Rank #2 (Buy).
Key Picks in the Sector
Some other well-ranked medical instruments stocks are Masimo Corporation MASI, Natus Medical Inc. BABY and Steris Plc STE. All the three stocks hold a Zacks Rank #1 (Strong Buy).
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