Hologic (HOLX) Q3 Earnings: A Surprise In The Cards?

Hologic Inc. (NASDAQ:HOLX) is slated to report third-quarter fiscal 2016 financial results on Jul 27, after the closing bell.

Last quarter, the company posted a positive earnings surprise of 2.17%. Notably, Hologics’ earnings surpassed the Zacks Consensus Estimate in all of the past four quarters, with an average beat of 6.08%.

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

Factors at Play

After delivering a promising result in its fiscal second quarter, Hologic is expected to demonstrate a similar outcome in the yet-to-be released fiscal third quarter as well. In particular, management remains enthusiastic about the future potential of Hologic’s mammography business, with its 3D Genius system currently catering to only 20% of the concerned market. This indicates the scope for further market expansion on Hologic’s part, which we believe will get duly reflected in its third quarter outcome.

However, year over year growth rate for the company’s U.S. breast health business might seem sluggish due to the higher comparable figures observed in the last fiscal’s third quarter.

In terms of its international breast health business, management expects to witness improved progress in third quarter and going forward. Notably, Hologic has been performing poorly in this space for past few quarters and has gained a certain stabilization only in fiscal second quarter.

Moreover, management is optimistic about the potential for its MyoSure system as Hologic aims at expanding its share in the addressable market by replacing the previous treatments. In addition, the withdrawal of a competitive product similar to that of Hologic’s NovaSure System recently has opened up more possibilities for the system. Going forward, the company is investing in marketing and physician outreach programs to maintain this trend in the quarters ahead.

We believe these strategic initiatives adopted by management as well as the favorablecompetitive recall will surely get reflected in the form of higher revenues for Hologic’s surgical business, to which these two systems belong.

On the flip side, rising operating expenses remains a concern for the company which in turn might keep its operating margin under strain. Management anticipates similar increase in operating expenses in the third quarter and the rest of fiscal 2016, as part of its strategy to generate long-term sustainable growth.

On the whole, for third-quarter fiscal 2016, Hologic expects revenues of $695–$705 million, representing annualized growth of 0.2%–1.6% and 0.6%–2% at CER. Adjusted EPS is projected at 47–48 cents (reported growth of 9.3%–11.6% and 10.1%–12.4% at CER). The current Zacks Consensus Estimate for revenues and EPS are $702 million and 47 cents, respectively.

Earnings Whispers

Our proven model does not conclusively show that Hologic is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Hologic has an earnings ESP of 0.00%.That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 47 cents.

Zacks Rank: Hologic has a Zacks Rank #2 (Buy) which increases the predictive power of ESP. However, a 0.00 % ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our proven model shows they have the right combination of elements to post an earnings beat in the upcoming quarter:

Bristol-Myers Squibb Company (NYSE:BMY) , with an Earnings ESP of +3.03% and a Zacks Rank #1.

Allergan plc (NYSE:AGN) , with an Earnings ESP of +0.90% and a Zacks Rank #2.

Laboratory Corp. of America Holdings (NYSE:LH) , with an Earnings ESP of +0.87% and a Zacks Rank #2.