HOLX Stock Gains From New Offerings Despite Macro Issues

Hologic HOLX has been gaining from new strategic product launches across Diagnostics and Breast Health. However, macroeconomic issues and unfavorable FX headwinds continue to impede growth. The stock carries a Zacks Rank #3 (Hold) currently.

Major Factors Driving HOLX Stock Growth

Among Hologic's advanced diagnostic products, primary revenue-generating ones are molecular diagnostic assays, which run on advanced instrumentation systems (Panther, Panther Fusion and Tigris), ThinPrep cytology system and the Rapid Fetal Fibronectin Test. With solid 10.5% growth, excluding COVID-19 sales in the fiscal third quarter of 2024, the Molecular Diagnostics business has consistently maintained high-single to double-digit gains in 13 of the last 15 quarters. Growth continues to be driven by the ongoing adoption and utilization of the broad menu in the Panther platform.

In Breast Health, Hologic expanded its product offering from imaging to cover the continuum of breast cancer care, including biopsy and surgery. The business is thriving primarily in the burgeoning spaces of radiology, breast surgery, pathology and treatment, with key profitable offerings such as 3D digital mammography systems, image analytics software utilizing artificial intelligence, ultrasound imaging and minimally invasive breast biopsy guidance systems. In the third quarter of fiscal 2024, revenues increased 7.1% (excluding the divested SSI business), driven by domestic and international growth of 7.2% and 12.1%, respectively.

The company's international sales have been a major catalyst in the past few years, growing 5.1% year over year in the third quarter of fiscal 2024. Molecular STI testing, cytology and MyoSure experienced strong growth in the global markets. However, the company perceives it as still in the early phase of utilizing its expanded Panther installed base. Similarly, while international cytology and STI testing have more dominant U.S. revenues, they are expected to become meaningful revenue drivers in the international markets with time.

In order to streamline its operations and reduce the cost of revenues, Hologic has adopted a few significant strategies over the past few years. The company has invested deliberately and opportunistically in commercial areas where management has recognized a good return. These include Hologic's Genius marketing campaign in Breast Health, cervical cancer co-testing initiatives in Diagnostics, along with efforts to gain competitive market share with NovaSure.

The stock has gained 12.2% year to date, compared with the industry's 7.6% rise. With the company currently focusing on the expansion of diagnostics assay and breast health offerings in global markets, we expect the stock to continue its upward movement in the coming days.

Major Downsides for HOLX

Continued concerns about the systemic impact of potential long-term and widespread recession have added to market volatility and diminished expectations for economic growth. The effect of the worldwide political and social uncertainty, including the impact on trade regulations and tariffs, economic disruptions as well as the ongoing supply chain constraints, have reportedly hampered the costs and sales of Hologic's products in certain countries in recent times. In the third quarter of fiscal 2024, Hologic's cost of revenues (product, service and other) rose about 1.9% year over year, while selling, general and administration expenses increased 4.2%.

These uncertainties surrounding global economic conditions and financial markets may cause medical equipment purchasers to decrease their medical health insurance premiums and procurement activities. Additionally, higher unemployment rates and health insurance premiums, co-payments and deductibles may result in cost-conscious consumers making fewer trips to their physicians and specialists, affecting the demand for the company's products and procedures.

We remain worried about the significant challenges Hologic faces owing to unfavorable foreign currency impact that has been adversely impacting the company's overall performance in the past few quarters. The company's international sales are often denominated in foreign currencies, including the euro, UK pound and renminbi. Changes in currency exchange rates, particularly the increase in the value of the dollar against any such foreign currencies, may reduce the reported value of Hologic's revenues outside the United States and associated cash flows. The company expects about $3 million adverse currency impact in the fourth quarter.

For several quarters in a row, declining COVID-19 assay revenues have been a headwind to some of the company's key performance metrics. Although the company returned to growth in the fiscal third quarter, the potential impact of the COVID-19 sales downturn still lingers.

Hologic's fiscal 2024 guidance assumes $70 million from COVID-19 assay sales, including $7 million in the fourth quarter of fiscal 2024. Overall, revenues from COVID-19-related items are expected to be approximately $105 million in fiscal 2024.

Key Picks

Some better-ranked stocks in the broader medical space are TransMedics Group TMDX, AxoGen AXGN and OrthoPediatrics KIDS. While TransMedics sports a Zacks Rank #1 (Strong Buy) at present, AxoGen and OrthoPediatrics carry a Zacks Rank #2 (Buy) each.

Estimates for TransMedics' 2024 earnings per share have moved up 2.5% to $1.23 in the past 30 days. Shares of the company have soared 156.5% in the past year compared with the industry's 17.5% growth. TMDX's earnings surpassed estimates in each of the trailing four quarters, the average surprise being 287.50%. In the last reported quarter, it delivered an earnings surprise of 66.67%.

Estimates for AxoGen's 2024 loss per share have remained constant at 1 cent in the past 30 days. Shares of the company have surged 165.9% in the past year, compared with the industry's 17.6% growth. AXGN's earnings surpassed estimates in each of the trailing four quarters, the average surprise being 96.5%. In the last reported quarter, it delivered an earnings surprise of 200%.

Estimates for OrthoPediatrics' 2024 loss per share have declined to 92 cents from 96 cents in the past 30 days. In the past year, shares of KIDS have lost 17.1% against the industry's 20.8% growth. In the last reported quarter, it delivered an earnings surprise of 25.81%. Its earnings surpassed estimates in each of the trailing four quarters, the average surprise being 26.81%.

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