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Why Is Hologic (HOLX) Down 11.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Hologic (HOLX). Shares have lost about 11.7% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Hologic Q3 Earnings Surpass Estimates, Margins Rise

Hologic reported third-quarter fiscal 2020 adjusted earnings per share of 75 cents, up 19% year over year. Moreover, the bottom line surpassed the Zacks Consensus Estimate by a stupendous 108.3%.

The company’s GAAP earnings per share was 53 cents, up 51.4% year over year.

Revenues in Detail

Revenues grossed $822.9 million in the reported quarter, down 3.5% year over year (down 3.1% at CER) due to the divestiture of Cynosure. The metric, however, exceeded the Zacks Consensus Estimate by 37.1%.

Excluding the divested Blood Screening and Medical Aesthetics businesses, total revenues were $815.1 million, up 8.2% year over year and 8.7% at CER. Organic revenues (excluding divestitures and the acquired SuperSonic Imagine or SSI business) of $811.2 million increased 7.7% and 8.1% at CER.

U.S. revenues of $660.8 million rose 2.9%. However, international revenues of $162.1 million declined 22.8% or 21.2% at CER.

Organically, revenues in the United States rose 11.2% year over year to $652.6 million in the quarter. However, international revenues were down 4.7% (down 2.8% at CER) to $158.6 million.

Segments in Detail

Revenues at the Diagnostics segment rose 74.3% year over year (up 74.9% at CER) to $532.2 million in the quarter under review, with Molecular Diagnostics being the major driver. Molecular Diagnostics’ revenues of $460.3 million climbed 169.3% (up 170.3% at CER), continuing the division’s strong performance. However, Blood Screening revenues of $7.8 million fell 45.1% (down 45.3% at CER).

Revenues at the Breast Health segment declined 31.2% (down 30.9% at CER) to $224 million. This primarily resulted from adverse impacts on demand for this segment’s products, especially in the United States, due to customers’ focus on responding to the pandemic, delayed or reduced purchases of capital equipment and rescheduled routine screening appointments. However, fall in service revenues and international sales were comparatively less, thus softening the overall decline.

Domestic sales were dismal in this segment in the quarter, with a 34.8% revenue decline year over year and 35% drop without SSI. Further, outside the United States, Breast Health sales decreased 16.5% in total and fell 21.9% without SSI.

Revenues at the GYN Surgical business fell 54.1% (down 53.9% at CER) to $51.5 million, while revenues at Skeletal Health dropped 37.7% (down 37.3% at CER) to $15.2 million.

Notably, Hologic no longer reports for the Medical Aesthetics segment post the divestiture of Cynosure Medical Aesthetics business on Dec 30, 2019.

Operational Update

In the fiscal third quarter, the company-reported adjusted gross margin expanded 310 basis points to 64.7%. According to the company, the benefits resulted from sales of SARS-CoV-2 tests and the divestiture of the lower-margin Cynosure business. However, this gain was partially offset by lower sales in Hologic’s other divisions due to the pandemic.

Adjusted operating expenses amounted to $261.1 million, down 5.5% year over year. However, the company-reported adjusted operating margin expanded 380 basis points to 33%.

Financial Update

Hologic exited the third quarter of fiscal 2020 with cash and cash equivalents of $744.2 million compared with $799.8 million at the end of second-quarter fiscal 2020. Total long-term debt was $3.29 billion at the end of the quarter under review, compared with $3.56 billion at the end of second-quarter fiscal 2020.

Cumulative net cash provided by operating activities at the end of the fiscal third quarter was $454.6 million compared with $401.8 million a year ago.

Guidance

Hologic, boosted by the strength in its COVID-19 tests and the ongoing recovery of its other divisions, has provided the financial guidance for fourth-quarter fiscal 2020.

The company projects revenues within $925-$1,025 million (projection of 6.8-18.4% growth rate). The growth rate is projected in the range of 6.7-18.3% at CER and within 17.4-30.3% organically. The Zacks Consensus Estimate for fourth-quarter fiscal 2020 revenues is pegged at $831.9 million.

GAAP earnings per share is estimated within 73-93 cents, which projects growth of 386.7-520%.

The adjusted earnings per share is estimated within 95 cents-$1.15, with projected growth of 46.2-76.9%. The Zacks Consensus Estimate for fourth-quarter fiscal 2020 earnings per share is pegged at 74 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 41.97% due to these changes.

VGM Scores

Currently, Hologic has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Hologic has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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