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Hologic (HOLX) Up 3.9% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Hologic, Inc. (HOLX - Free Report) . Shares have added about 3.9% in that time frame, underperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Hologic reported first-quarter fiscal 2017 adjusted earnings per share (EPS) of $0.52, up 13% year over year. Adjusted EPS also beat the Zacks Consensus Estimate by $0.01 and exceeded the company's guidance of $0.50-$0.51.

Management believes the company's additional capital deployment efforts have led to faster EPS growth in comparison to revenues.

On a reported basis, the company recorded net income of $86.5 million or $0.30 per share, reflecting a year-over-year rise of 1.8% or 3.4%, respectively.

Revenues in Detail

Revenues grossed $734.4 million in the quarter, up 5.6% year over year. The top line also comfortably exceeded the Zacks Consensus Estimate of $724 million and the company's estimation of $720-$730 million. At constant exchange rate (CER), revenue growth was 6.3%.

Barring sluggish Skeletal Health performance, solid growth across of Hologic's rest three business segments drove the upside in the top line.

Geographically, revenues in the U.S. increased 5.2% year over year to $573.6 million on the back of persistent strong recent trends. On the other hand, international revenues increased 7.2% (up 10% at CER) to $160.8 million on strong growth in blood screening, molecular diagnostics and GYN Surgical.

Segments in Detail

Sales at the Diagnostics segment (44.1% of total revenue) grew 4.7% year over year (up 5.5% at CER) to $325.4 million in the quarter. Growth was primarily driven by global molecular diagnostics and blood screening sales, which improved 8.8% and 7.4%, respectively, at CER. However, revenues from Cytology & Perinatal were modest with growth of 1.1% at CER.

Sales from the Breast Health segment (37.2%) rose 4.2% (up 4.6% at CER) to $273.3 million. Growth was primarily driven by strong domestic placements of Genius 3D mammography systems. Outside the U.S., Breast Health sales were flat.

Sales from the GYN Surgical business (15.6%) jumped 16.2% (up 17.2% at CER) to $114.8 million, on account of 32.1% growth in MyoSure system sales and 8.6% rise in NovaSure system, both at CER. Revenues from Skeletal Health (accounting for the rest) dropped 10.8% (down 10.7% at CER) to $20.9 million due to lower volumes.

Operational Update

In the fiscal first quarter, Hologic's gross margin expanded 60 basis points (bps) to 55.1%. However, adjusted gross margin remained flat year over year at 65.2% as a favorable high-margin product mix was offset by increasing international sales and negative effects of a stronger U.S. dollar.

Hologic's adjusted operating expenses amounted to $231.1 million, up 4.6% year over year on account of extra days in the fiscal calendar and timing of marketing expenses. Adjusted operating margin expanded 30 bps to 33.7%.

Financial Update

Hologic exited the quarter with cash and cash equivalents of $646 million, comparing favorably with $548.4 million reported at the end of fiscal 2016. Total long-term debt was $3.32 billion at the end of the quarter, compared with $3.34 billion at the end of fiscal 2016.

Operating cash flow in the fiscal first quarter was $169.6 million, down 1.1% from the year-ago period.

Fiscal 2017 Guidance

Hologic lowered its guidance for fiscal 2017 after including the expected impact of the divestiture of blood screening business, and a revenue headwind of more than $20 million from a stronger U.S. dollar. The company currently expects revenues in the range of $2.79-$2.82 billion from earlier guidance of $2.94-$2.98 billion. This new revenue guidance reflects negative annualized growth of 1.7-0.3%. The previous view was a gain of 3.8-5.2% on a reported basis and  (0.7%)-0.7% at CER (earlier guidance: 4-5.5%). The current Zacks Consensus Estimate of $2.95 billion remains way ahead of the company's provided guidance.

Hologic has also lowered its EPS outlook for fiscal 2017. The company currently projects adjusted EPS in the range of $1.90-$1.94 ($2.12-$2.16) for fiscal 2017 reflecting annualized growth of (1.5%)-0.6% (8.5-10.6%) at CER. The current Zacks Consensus Estimate for adjusted EPS is pegged at $2.14, also exceeding the range.

For second-quarter fiscal 2017, Hologic expects revenues of $675-$685 million (down from earlier guidance of $720-$730 million), representing annualized growth of (2.6%)-1.2% (3.8-5.2%) and negative 1.7% to negative 0.3% (3.6-5.0%) at CER. Adjusted EPS is projected at $0.45-$0.46 implying negative growth of 4.3% to negative growth of 2.1% at CER. The current Zacks Consensus Estimate for second-quarter revenues and EPS are pegged at $721.7 million and 52 cents, respectively, both ahead of the company's expectations.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two upward revisions for the current quarter.

Hologic, Inc. Price and Consensus

 

Hologic, Inc. Price and Consensus | Hologic, Inc. Quote

VGM Scores

At this time, Hologic's stock has a nice Growth Score of 'C', though it is lagging a lot on the momentum front with a 'D'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the stock is suitable for value and growth investors.

Outlook

The stock has a Zacks Rank #1 (Strong Buy). We are looking for an above average return from the stock in the next few months.


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