Deutsche Bank Downgrades Hologic, Says Core Businesses Face Structural Challenges

Medical diagnostics products maker Hologic, Inc. HOLX is likely to be stifled by secular growth challenges on multiple fronts, Deutsche Bank said in a Thursday note.

The Analyst

Deutsche Bank analyst Dan Leonard downgraded shares of Hologic from Buy to Neutral with a $46 price target. 

The Thesis

Many of Hologic's businesses — breast imaging, U.S. Pap, medical aesthetics — face structural challenges, Leonard said in the note. (See the analyst's track record here.) 

This is despite the management's track record of resolving headwinds and the stock's discounted valuation, the analyst said.

Deutsche Bank is sounding the alarm on a projected deceleration in diagnostic, which accounted for 40 percent of 2017 sales; challenges in GYN Surgical, responsible for 14 percent of 2017 sales; and "the fickle nature and cyclicality" of the medical aesthetics business, which contributed 13 percent of 2017 sales. But the analyst said he is comfortable with the outlook for the breast imaging business, given its strong results over the last six months. 

"Further study of the issues reduces our confidence these challenges will resolve favorably, and thus we see downside to Street organic revenue growth expectations for 2018-2020," Leonard said. 

With upside to numbers unlikely, the analyst said he sees limited opportunity for stock outperformance against the backdrop of an over 20-percent run-up in the stock over the past three months.

Deutsche Bank reduced its 2019-2020 organic revenue forecasts from 4.5 percent to 4 percent, while the Street is estimating 5-percent growth.

The Price Action

Over the past year, Hologic shares are up about 10 percent.

Hologic was down 2.01 percent at $42.97 at the time of publication. 

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Photo courtesy of Hologic.