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Hologic (HOLX) Up 3.5% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Hologic, Inc. HOLX. Shares have added about 3.5% in that time frame, outperforming 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 of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Hologic Tops Q2 Earnings & Sales, Raises 2017 View

Hologic  reported second-quarter fiscal 2017 adjusted earnings per share (EPS) of $0.50, up 6.4% year over year. Adjusted EPS also beat the Zacks Consensus Estimate of $0.46 and exceeded the company’s guidance of $0.45–$0.46.

Management believes strong top-line growth led to faster EPS growth in the reported quarter.

On a reported basis, the company recorded net income of $526.8 million or $1.84 per share, both reflecting a year-over-year rise of over 100%.

Revenues in Detail

Revenues grossed $715.4 million in the quarter, up 3.2% year over year. The top line also comfortably exceeded the Zacks Consensus Estimate of $685 million and the company's estimation of $675–$685 million. At constant exchange rate (CER), revenue growth was 3.8%.

Solid growth at Hologic’s Breast Health and GYN Surgical business segments drove the upside in the top line.

Geographically, revenues in the U.S. increased 4.1% year over year to $570.1 million. Excluding blood screening and medical aesthetics, U.S. sales rose 4.1%. On the other hand, international revenues declined 0.1%  to $145.3 million but recorded 2.8% growth at CER owing to strong growth in molecular diagnostics, GYN Surgical and Breast Health. Excluding blood screening and medical aesthetics, international sales increased 7.7% or 11.1% at constant currency.

Segments in Detail

Sales at the Diagnostics segment (44.1% of total revenue) declined 2.8% year over year (down 2.0% at CER) to $296 million in the second quarter. Under this segment, molecular diagnostics sales of $142.1 million increased 12.6% (13.3% at CER). This was primarily driven by continued strength across Aptima women's health products on the fully automated Panther and Tigris platforms, both in the U.S. and internationally.  Cytology and perinatal sales of $115.6 million also showed a decline of 0.4% (up 0.8% at CER).

Sales at the Breast Health segment (39.2%) rose 1.7% (up 2.1% at CER) to $280.5 million. Revenues in the U.S. increased 1.5%, driven by increase in service revenues and new product sales that supplemented continued adoption of Hologic's Genius 3D Mammography systems. 

Sales from the GYN Surgical business (14.1%) jumped 11.2% (up 11.9% at CER) to $101.1 million. This is on account of 31% growth (31.7% at CER) in MyoSure system sales to $46.6 million. Meanwhile, there was a 1% decrease (down 0.4% at CER) in NovaSure system sales.

Revenues at Skeletal Health (accounting for the rest) dropped 1.6% (down 0.9% at CER) to $21.8 million.

Operational Update

In the fiscal second quarter, Hologic’s gross margin contracted 124 basis points (bps) to 54.3%. Adjusted gross margin also decreased 233 bps to 63.4% due to the blood screening divestiture, negative impact of a stronger dollar and unfavorable product mix.

Hologic's adjusted operating expenses amounted to $276 million, up 24.2% year over year. Adjusted operating margin contracted a massive 891 bps to 24.8%.

Financial Update

Hologic exited the fiscal second quarter with cash and cash equivalents of $1.13 billion, considerably above $646 million reported at the end of the first quarter. Total long-term debt was $3.28 billion at the end of the fiscal second quarter, compared with $3.32 billion at the end of the preceding quarter.

Operating cash flow in the fiscal second quarter was $83.8 million, down from $169.6 million at the end of the fiscal first quarter. 

Fiscal 2017 Guidance

Hologic raised its sales guidance for fiscal 2017. The company currently expects revenues in the range of $3.05–$3.08 billion, higher than the earlier guidance of $2.78–$2.82 billion. This new guidance reflects annualized growth of 1.0–3.1%. The current Zacks Consensus Estimate of $3.05 billion is at the low end of the company-provided guidance.

Management has also raised its EPS outlook for fiscal 2017. Hologic currently projects adjusted EPS in the range of $1.98–$2.02 (from previous $1.90–$1.94) for fiscal 2017, reflecting annualized growth of 1%–3.1%. The current Zacks Consensus Estimate for adjusted EPS is pegged at $1.97, lower than the guided range.

For third-quarter fiscal 2017, Hologic expects revenues of $790–$805 million (down from the prior guidance of $675–$685 million). The current Zacks Consensus Estimate for third-quarter revenues is $813.7 million, ahead of the company’s expectations.

Adjusted EPS is projected at $0.48–$0.50 (beyond the upper end of the previous $0.48–$0.46 range). The current Zacks Consensus Estimate for third-quarter adjusted EPS is pegged at $0.50, which meets the high end of the company’s guidance.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

Hologic, Inc. Price and Consensus

 

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

VGM Scores

At this time, Hologic's stock has a poor Growth Score of 'F', however its Momentum is doing a lot better with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

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

Our style scores indicate that the stock is equally suitable for value investors and momentum investors.

Outlook

Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.


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