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Bull of the Day: Hologic (HOLX)

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Hologic (HOLX - Free Report) is an $18 billion provider of medical diagnostics that specializes in women's health with nearly 75% of the US mammography market share. But they recently reported a stellar "beat-and-raise" quarter on the back of strong sales of COVID-19 testing products.

The company serviced around 32% share of total COVID testing volumes in Q4, with a 50% increase in capacity planned for 2021.

Plus, this strong push into COVID testing is actually strengthening their molecular diagnostics segment which will help the company grow organically long after this crisis is over.

Hologic reported their FY20 Q4 (ended September) on Nov 4, delivering adjusted EPS of $2.07, vs. the consensus of $1.22, for a 70% beat.

Revenue of $1.347 billion, vs. the consensus of $1.12B, increased 55.6% year-over-year. Organic revenue increased 72.5%, as strong sales of COVID tests offset declines in other segments that were slowed down by the pandemic, as patients and doctors could not be as pro-active with regular diagnostics.

In guidance, Hologic sees Q1 adjusted EPS of $2.10-$2.25 vs. consensus of $1.23 and Q1 revenue of $1.35B-$1.425B vs. consensus of $1.13B.

This beat-and-raise quarter prompted analysts to dramatically raise estimates. In the last few weeks, the consensus EPS projection for the new FY21 shot up 46% from $4.33 to $6.34 among eight analysts, which would representing 59% annual growth.

This encompasses the Dec and March quarters which will average 200% year-over-year growth.

Revenues for FY21 are now seeing a consensus of $4.95 billion among six analysts, representing 31% annual growth. This encompasses the Dec and March quarters which are expected to see 54% and 73.6% y-o-y growth.

Filling the CoVoid with Rapid R&D and Sales

As with another COVID testing company I own in Healthcare Innovators, Quidel (QDEL - Free Report) , the key to winning with testing volumes is having contract manufacturing agreements. Currently selling around 2 million test kits per week and growing, most of Hologic's contracts have been extended to 2021. Here was a recent press release describing company partnerships and goals...

Hologic Awarded U.S. Government Contract to Expand COVID-19 Test Production Capacity
October 30, 2020

-- $119 Million Contract Will Support Scale Up to 13 Million Tests Per Month for U.S. Market --

MARLBOROUGH, Mass.--(BUSINESS WIRE)-- Hologic, Inc. (Nasdaq: HOLX) announced today that it has been awarded a $119 million contract from the United States government to expand its production capacity for COVID-19 molecular tests. The contract will support capital and labor investments enabling Hologic to provide 13 million COVID-19 tests per month for the U.S. market by January of 2022.

Hologic’s Panther Fusion® SARS-CoV-2 Assay and Aptima® SARS-CoV-2 Assay received Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration in March 2020 and May 2020, respectively. The tests run on the Company’s fully automated Panther Fusion® and Panther® systems, which provide initial results in approximately three hours and process more than 1,000 tests in 24 hours. More than 2,000 of these systems have been installed in clinical diagnostic laboratories around the world, including in all 50 U.S. states.

And the day after earnings, Hologic announced another breakthrough offering in women's health...

Hologic Launches Comprehensive Omni® Suite for Hysteroscopy
November 5, 2020

-- New Omni 30° hysteroscope and Omni 4K video system provide customizable operative capabilities and powerful visualization to both diagnose and treat patients--

MARLBOROUGH, Mass., November 5, 2020 -- Hologic, Inc. (Nasdaq: HOLX), a global leader in women's health, today launched the Omni® Suite, a comprehensive surgical offering designed to optimize diagnostic and operative hysteroscopy. The offering includes a versatile Omni 30° hysteroscope and innovative Omni 4K video technology to complement the company’s existing portfolio of GYN surgical solutions.

Analyst Views of the Hologic Resurgence

Wall Street outlooks became further bullish after the recent report and price targets also moved up significantly toward the $85-90 area...

Jefferies: Analyst Raj Denhoy raised the firm's price target on Hologic to $98 from $80 following a "monster" quarter driven by $600M in COVID testing revenue and $818M in overall molecular sales. Molecular momentum is expected to continue even beyond COVID given a combination of more machines and a deeper menu, noted Denhoy who raised his FY21 EPS forecast to $6.38 from $3.65.

Needham: Analyst Mike Matson raised the firm's price target on Hologic to $88 from $78 with a Buy rating after the company delivered Q4 revenue that was above its earlier pre-announcement while its organic revenue growth accelerated to 71% from 8% in Q3. Matson noted that growth in Diagnostics, which had benefited from COVID-19 testing, more than offset the weakness in the Hologic Breast Health and GYN Surgical businesses.

Wells Fargo: Analyst Dan Leonard raised the firm's price target on Hologic to $90 from $80 as he believes the company's growth opportunities in Diagnostics are underappreciated at current levels. In particular, he thinks the Diagnostics business will emerge from the COVID pandemic structurally stronger.

JPMorgan: Analyst Tycho Peterson raised the firm's price target on Hologic to $85 from $75 and kept an Overweight rating on the shares following the company's "significant beat" in fiscal Q4. Hologic is "extremely well positioned to capture the large opportunity" associated with COVID-19 testing he believes.

SVB Leerink: Analyst Richard Newitter raised the firm's price target on Hologic to $94 from $80 citing solid Q4 top and bottom beats and a bullish Q1 outlook with "impressive Panther placement" and COVID testing ramp expectation. Newitter continues to believe the stock offers an attractive relative valuation and an intriguing "COVID Hedge" where Hologic stands to benefit on both sides of COVID.

Bottom line on HOLX: Buy the dips under $70 and look for strong cash flow to aid the company's R&D and expansion of diagnostics and surgical products across several verticals and internationally.

Disclosure: I own shares of HOLX and QDEL for the Zacks Healthcare Innovators portfolio.

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