Leerink Downgrades Hologic After 'Lower Quality' Q2 Revenue Beat

Hologic, Inc. HOLX reported fiscal second-quarter results that prompted Leerink to drop its bullish stance on the women's health-focused medical technology company. 

The Analyst

Leerink's Richard Newitter downgraded Hologic's stock rating from Outperform to Market Perform with a price target lowered from $48 to $41.

The Thesis

Hologic did report a sales beat in it Q2, but it was driven mostly by breast health sales that benefited from distribution acquisitions, Newitter said in a Thursday note. Skeletal sales also saw outperformance, the analyst said. (See Newitter's track record here.) 

Molecular diagnostics excluding blood screening fell short of expectations due to poor weather trends, Newitter said. A better-than-expected contribution from blood screening yielded a "lower quality" revenue beat, he said. The medical aesthetics segment saw sales fall short of estimates yet again, while GYN sales were in-line but continued to decline on a year-over-year basis, the analyst said. 

Hologic also realized a $46-million write down for the Cynosure business, and the company's management is no longer confident it will see a ramp in the business in the back half of fiscal 2018, Newitter said. The outlook prompted the company to issue new revenue growth rate outlook of 4-4.9 percent versus a prior range of 4.6-7.2 percent, which implies 2.7-3.7-percent growth and an organic growth rate in the low single digits. 

Leerink's prior bullish stance was based on expectations for near-term EPS upside, but this has now "diminished," Newitter said. "Cynosure has been the company's Achilles heel since the acquisition closed in mid-2017 and we are beginning to question whether the business's struggles might be more structural in nature vs. pure sales force execution/backfilling (as management is assuming." 

Price Action

Hologic shares were down 10.43 percent at $35.50 at the time of publication Thursday. 

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Photo courtesy of Hologic.