Hologic (HOLX) Poised On Balanced Growth Amid Currency Woes

On May 23, we issued an updated research report on Bedford, MA-based Hologic Inc. (NASDAQ:HOLX) – a provider of diagnostics, medical imaging systems and surgical products – which caters to the healthcare needs of women. The company currently carries a Zacks Rank #3 (Hold).

Hologic posted better-than-expected results in the second quarter of fiscal 2017, with both earnings and sales beating the respective Zacks Consensus Estimate. The company’s top-line growth was driven by strength in molecular diagnostics, GYN Surgical and Breast Health businesses. Management’s raised guidance for fiscal 2017 also creates optimism.

For the last three months, Hologic has been trading above the Zacks categorized Medical - Instruments industry. Post the earnings release, the company’s share price scaled higher. The stock has rallied 7.2% compared with the 6.6% gain of the broader industry in this period.

In this regard, we note that, Hologic continues to remain upbeat about its strong performance in the U.S. over the recent past. Segment wise, in the last reported quarter, Hologic witnessed growth across most of its business segments. In particular, management was encouraged with the strong achievements it made in the GYN Surgical segment.

International sales also grew, excluding blood screening, led by molecular diagnostics and surgical franchises. The company expects to maintain this momentum going ahead. In the long run, management continues to aim at business improvement in the international market, where the company has already identified several attractive growth opportunities and plans to capitalize on them.

In terms of product innovation, Hologic recently launched a next-generation NovaSure ADVANCED product in the U.S. for the treatment of abnormal uterine bleeding. The company also announced FDA approvals for two new diagnostic assays. The assays are viral load tests for HIV-1 and the hepatitis C virus. Hologic also announced that its Aptima Zika Virus diagnostic assay received CE mark in Europe for the detection and diagnosis of Zika virus in patients. Management also continues to expect U.S. regulatory clearance for its hepatitis B assay in 2018.

On the flip side, we remain worried about the significant challenges Hologic has to face owing to unfavorable foreign currency impact that has been adversely affecting the company’s overall performance in the past few quarters. In 2017, foreign exchange headwind is expected to drive an incremental reduction of over $20 million.

The company’s skeletal health segment once again demonstrated sales decline this quarter, on account of adverse distributor ordering patterns. In addition, a challenging capital spending environment, competitive headwinds and rising pricing pressure are downsides.

Key Picks

Better-ranked stocks in the broader medical sector include Luminex Corporation (NASDAQ:LMNX) , Inogen, Inc. (NASDAQ:INGN) and Edward Lifesciences, Inc. (NYSE:EW) . Luminex and Inogen sport a Zacks Rank #1 (Strong Buy), while Edward Lifesciences carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Luminex has an expected long-term adjusted earnings growth of almost 16.3%. The stock added roughly 9% over the last three months.

Inogen has a long-term expected earnings growth rate of 17.5%. The stock has a solid one-year return of roughly 77.7%.

Edward Lifesciences recorded a stellar EPS growth rate of almost 16% (last three to five years of actual earnings).

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