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What's Setting the Tone for Hologic's (HOLX) Q1 Earnings?

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Hologic, Inc. (HOLX - Free Report) is slated to report first-quarter fiscal 2019 results on Jan 30, after the closing bell. The company’s earnings surpassed the Zacks Consensus Estimate in two of the past four quarters, the average beat being 3.5%.

Let’s see how things are shaping up prior to this announcement.

Key Catalyst

Hologic recently announced preliminary revenue results for first-quarter fiscal 2019. The company projects an impressive performance in the quarter and expects to surpass its expectations on the revenue front.

Per the preliminary announcement, Hologic expects total revenues to increase approximately 5% (up 5.7% at constant exchange rate or CER) on a year-over-year basis to $831 million in the to-be-reported quarter, well ahead of the Zacks Consensus Estimate of $818.4 million. This also exceeds the company's earlier provided revenue guidance of $800-$815 million. Solid top line is primarily expected on the back of growth across a majority of Hologic’s segments. (Please read: Hologic Stock Rides on Impressive Preliminary Q1 Result)

Hologic is optimistic about riding on strength in the Breast Health segment in the to-be-reported quarter.  There has been consistent rise in market share within Breast Health on the back of direct-to-consumer initiatives, introduction of products, and software and services along with strong mammography systems portfolio.

Hologic, Inc. Price and EPS Surprise

 

Management seems upbeat about the buyout of Focal Therapeutics and Faxitron Bioptics. These acquisitions are aimed to broaden the Breast Health portfolio and strengthen Hologic’s position in the breast-conserving surgery market.

Additionally, the company’s adoption of mammography systems, 3Dimensions and 3D Performance encourages us. These products started to leverage the company’s Genius brand and encouraged customers to upgrade their existing 2D systems.

In this regard, the receipt of PMA from the FDA for Clarity HD high-resolution 3D imaging and Intelligent 2D imaging technology is noteworthy. These products are now available in the 3Dimensions breast tomosynthesis system.

Further, global sales of interventional breast products — mainly biopsy systems and disposables — have been rising consistently. Increase in Affirm prone table sales is another positive. The company projects that Brevera, new real-time biopsy system, will continue to drive growth in fiscal 2018.

Hologic also has a CE Mark for the Brevera breast biopsy system, with CorLumina imaging technology, real-time breast biopsy and verification system.

As per the preliminary result, Hologic expects to report Breast Health (39.1% of total revenues) revenues of $325 million, up 12.8% on a year-over-year basis.

The Zacks Consensus Estimate for interventional breast solutions revenues is pegged at $61 million, marking rise of 17.3% from the prior-year quarter. The consensus estimate for Mammography/Breast Care revenues is pegged at $319 million, which reflects an increase of 10.8% from the year-ago quarter.

Other factors that are likely to influence Hologic’s results in the fiscal first quarter are as follows:

The company expects the Diagnostics segment to maintain a stellar performance on strength in the Molecular Diagnostics business. In the United States, it is likely to gain from increasing market share and utilization of the Panther system along with market expansion by conforming to testing guidelines.

Global growth in the Molecular Diagnostics segment can be attributed to the Panther system, Hologic’s fully-automated molecular diagnostics instrument. In October, Hologic boosted its portfolio of respiratory assays available for Panther Fusion, with the receipt of CE mark for its Panther Fusion Bordetella assay. Moreover, the company’s receipt of FDA approval for its Group B Streptococcus (GBS) assay on the Panther Fusion system encourages us.

The frequent utilization of Aptima women’s health assays is another catalyst.

Notably, Aptima assays gained a huge customer base, with respect to testing for chlamydia and gonorrhea, HPV (human papillomavirus), and trichomonas. We are also hopeful about Hologic’s expanded market for sexually transmitted disease testing.

The company is seeing strong demand for virology tests as well. A similar trend is expected to be maintained in the to-be-reported quarter.

As per the preliminary result, Hologic expects to report Diagnostics (35.7% of total revenues) revenues of $297 million, up 4.2% on a year-over-year basis.

The Zacks Consensus Estimate of $160 million for Molecular Diagnostics revenues reflects an increase of 7.4% from the year-ago quarter.

Management is highly optimistic about international performance as well. During the fourth quarter of fiscal 2018, international revenues rose 4.5%, primarily on strong contribution from the Molecular Diagnostics, Breast Health and Gyn Surgical businesses. This trend is expected to continue in the to-be-reported quarter.

On the flip side, Hologic has faced challenges like unfavorable foreign currency movement over the past few quarters. Escalating operating expenses and intense competition, particularly in the tomosynthesis market, are persisting headwinds.

What Our Model Suggests

Per the proven Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has higher chances of beating estimates if it also has a positive Earnings ESP.

Hologic currently has a Zacks Rank #3 and an Earnings ESP of +2.19%. The combination hints that the company is likely to post a beat for this earnings season. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The Zacks Consensus Estimate for earnings of 57 cents reflects 3.6% rise on a year-over-year basis.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as these too have the right combination of elements to post an earnings beat this quarter.

PerkinElmer (PKI - Free Report) has an Earnings ESP of +0.77% and a Zacks Rank #3.

Illumina, Inc. (ILMN - Free Report) has an Earnings ESP of +0.32% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

DexCom (DXCM - Free Report) has an Earnings ESP of +8.93% and a Zacks Rank #2.

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