Hologic Strides on Synergy Track

Hologic Inc. (HOLX - Analyst Report) recently announced organizational changes involving radical transformation in the top management for its Diagnostics franchise.

As part of the organizational changes, the Senior Vice President and General Manager of Diagnostics, Carl Hull, announced his retirement. Hull had earlier served as the Chairman, President and Chief Executive Officer of Gen-Probe (erstwhile molecular diagnostic player) until the completion of the acquisition.

Notably, Hologic continues to successfully integrate Gen-Probe, following the closing of the acquisition in Aug 2012. The company is moving forward with several organizational changes to further gain from its solid footing in the Diagnostics business.

Financial Benefits

The successful integration of Gen-Probe with its legacy Diagnostics segment is likely to yield positive results as the company expects to realize cost synergies of over $40 million by the end of the first year of the acquisition. Hologic also envisages an additional $35 million in cost synergies by the end of the third year.

Moreover, the complementary product portfolio, cross-selling opportunities and enhanced global footing should result in potential revenue synergies for Hologic. As the integration process is accelerating, Hologic expects to create significant value from the takeover. The synergies underline the company’s attempt to improve its infrastructure and develop its pipeline.

Subsequent to the Gen-Probe deal, Diagnostics became the largest segment at Hologic (representing 44% of the total sales in the fourth quarter of 2012). The contribution is likely to increase further as the organizational changes leverage the franchise growth.

Our Take

Hologic is leaving no stone unturned to consolidate operations and realize potential synergies. While we await updates on the revenue growth potential on the back of synergies, we are encouraged by the company’s ability to spot the timing and the value of the cost synergies.

Although Hologic constantly works to create value for its shareholders, several challenges such as economic uncertainties in Europe, slower sales cycles and increasing pricing pressure keeps us on the sidelines. Accordingly, the stock carries a Zacks Rank #3 (Hold). Other medical sector stocks that warrant a look are Cantel Medical (CMN - Snapshot Report), Cyberonics (CYBX - Analyst Report) and Delcath Systems (DCTH - Snapshot Report) each carrying a Zacks Rank #1 (Strong Buy).