Cowen: Hologic Is A Relatively Cheap Stock Overdue For Upside

Valuation of Hologic, Inc. HOLX — which manufactures diagnostic products, medical imaging systems and surgical products — is attractive, according to a Cowen analyst. 

The Analyst

Cowen analyst Doug Schenkel upgraded shares of Hologic from Market Perform to Outperform and upped the price target for the shares from $43 to $51.

Cowen also named the stock as one of its best ideas for 2018.

The Thesis

Hologic shares, trading at 12 times the 2019 EBITDA estimate, are relatively cheap and are overdue to catch up with a high-performing group, analyst Schenkel said in a Monday note. (See Schenkel's track record here.) 

The company generates above-average revenue growth, has a 2019 free cash flow yield of about 6 percent and could have its tax rate slashed by 10 points through the pending tax bill, the analyst said. 

Cowen expects Hologic to generate 5 percent constant currency revenue growth over the next three years, with 1 percent mammography growth, nominal NovaSure growth and Cynosure sales growth similar to or less than that in 2016.

Even if Cynosure continues to struggle, the analyst expects new products, continued mid-single or high-single digit surgical growth, and resilient mid-single digit or high-single-plus molecular diagnostics growth to help maintain mid-single digit revenue growth and generate about 200 basis points in operating expansion over the next three to five years.

This, coupled with a 10-point tax cut and opportune capital deployment, could drive over 10 percent earnings per share growth, helping to exceed expectations, Schenkel said.

"We like other names in our group, but there isn't much more attractive from a risk/reward perspective than HOLX in terms of new ideas with a chance for upward revision subsequent to 1-2 years of group underperformance," Cowen concluded.

The Price Action

Hologic shares are up about 7.50 percent year-to-date.

At the time of writing, shares of Hologic were adding 3.07 percent to $44.

Related Links:

Deutsche Bank Optimistic On Fundamentals In Life Science Tools/Diagnostics Sector

Is Transenterix Really A Threat To Intuitive Surgical?

Photo courtesy of Hologic.