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Hologic (HOLX) Down 4.8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Hologic (HOLX - Free Report) . Shares have lost about 4.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hologic due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Hologic reported third-quarter fiscal 2018 adjusted earnings per share (EPS) of 58 cents, up 16% year over year and above the company’s 55-57 cents guidance. Adjusted EPS beat the Zacks Consensus Estimate of 56 cents.

On a reported basis, the company recorded net income of 41 cents per share as compared with 21 cents in the year-ago quarter.

Revenues in Detail

Revenues grossed $824 million in the quarter, up 2.2% year over year (up 1.1% at constant exchange rate or CER). The top line surpassed the Zacks Consensus Estimate of $800.1 million and the company’s guidance of $795-$810 million.

Solid contributions from Breast Health and international businesses drove the top line.

Geographically, revenues in the United States declined 0.3% year over year to $616.8 million. However, the company saw sequential improvement in Breast Health, Diagnostics and Surgical businesses in the United States. International revenues were up 10.5% (up 5.5% at CER) to $207.2 million, primarily on strong contribution from the Breast Health business.

Segments in Detail

Revenues at the Diagnostics segment (35.7% of total revenues) rose 3.6% year over year (up 2.3% at CER) to $294.3 million in the third quarter. Under this segment, Molecular Diagnostics revenues of $154.5 million increased 7.3% (6.3% at CER). Global growth at Molecular Diagnostics was primarily driven by new product revenues along with continued solid uptake of Aptima women's health products. The company is also seeing strong demand for the virology tests.

Cytology and Perinatal revenues of $121.1 million showed an improvement of 0.1% (down 1.8% at CER).

Revenues at the Breast Health segment (37.4%) rose 8.5% (up 7.4% at CER) to $307.9 million. Revenues in the United States grew 4.4%. The upside was led by higher service and new product revenues. International revenues however climbed 26.1% (20.5% at CER) year over year, marking the fourth consecutive quarter of growth of more than 20%.

Revenues at the GYN Surgical business (13.1%) were up 1.1% (up 0.3% at CER) to $107.7 million. Medical Aesthetic business in the quarter reported revenues of $91.7 million, reflecting 11.1% of total revenues. Revenues at Skeletal Health (accounting for the rest) increased 3.2% (up 2.1% at CER) to $22.5 million.

Operational Update

In the fiscal third quarter, Hologic’s gross margin expanded 210 basis points (bps) to 52.9%. Adjusted gross margin fell 50 bps to 62.6% due to the divestiture of blood screening business, geographic mix and revenues from low-margin Cynosure products.

Hologic’s adjusted operating expenses amounted to $279 million, up 1.5% year over year. Adjusted operating margin contracted 20 bps to 28.8%.

Financial Update

Hologic exited third-quarter fiscal 2018 with cash and cash equivalents of $575.4 million, compared $614.2 million at the end of second-quarter fiscal 2018. Total long-term debt was $2.72 billion at the end of the reported quarter, compared with $2.74 billion in second-quarter fiscal 2018.

During the nine months ended Jun 30, 2018, the company generated operating cash flow of $500.5 million, against the cash used in operating activities of $158.3 million in the year-ago period. 

Guidance

Hologic has updated its fiscal 2018 financial guidance. The company currently expects adjusted revenues of $3.21-$3.22 billion, compared with the previous range of $3.18-$3.21 billion. The company expects revenues to grow in the range of 3.9-4.4% compared with the previously provided range of 2.7-3.7% at CER. The Zacks Consensus Estimate for revenues is pinned at $3.20 billion, below the guided range.

The company currently expects adjusted EPS of $2.24-$2.26, compared with the previous range of $2.22-$2.27. The Zacks Consensus Estimate for adjusted EPS is pegged at $2.23, below the guided range.

For fourth-quarter fiscal 2018, Hologic expects adjusted revenues of $800-$815 million, representing annualized decline of 4% to annualized growth of 1.5% at CER. The Zacks Consensus Estimate for revenues stands at $817.2 million, above the projected range.

Adjusted EPS is estimated at 58-60 cents, reflecting an annualized growth of 16-20%. The Zacks Consensus Estimate for third-quarter adjusted EPS is pinned at 60 cents, coinciding with the high end of the company’s guidance.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Hologic has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our style scores.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Hologic has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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