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

Why Neutral?

On May 6, Hologic reported adjusted EPS of 35 cents, beating the Zacks Consensus Estimate by a penny and the year-ago EPS by a couple of cents. Revenues shot up 30% year over year to $612.7 million. Despite robust growth, the top line trailed the Zacks Consensus Estimate of $644 million.

Hologic continued to witness revenue growth on the back of inclusion of Gen-Probe revenues, higher sales of MyoSure and tomosynthesis systems and wider installed base of digital mammography systems. The APTIMA STD line has been a major growth catalyst over the past few quarters.

As per management, tests menu expansion on the PANTHER systems presents another upside. The company is also banking on its innovative 3D tomosysnthesis technology to drive revenues over the long haul.

Nonetheless, Hologic faced several challenges in the quarter such as lower sale of legacy products, disruption in ThinPrep business in China and tough capital spending environment. Margin erosion for its mainstay Diagnsotics franchise is also a matter of concern.

Following the mixed second quarter results, Hologic lowered its expectations for fiscal 2013. At present, the company envisages adjusted revenues of $2.53−$2.55 billion compared with earlier outlook of $2.61−$2.64 billion. The company also lowered its adjusted EPS guidance to $1.54−$1.56 compared with the earlier guidance of $1.58−$1.60.

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 Natus Medical Inc. (BABY - Snapshot Report), carrying a Zacks Rank #1 (Strong Buy) warrant a look. We are also positive about Heartware International Inc. (HTWR - Snapshot Report) and CryoLife Inc. (CRY - Snapshot Report) doing well. These stocks carry a Zacks Rank #2 (Buy).

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