Hologic (HOLX) Stays Neutral

We recently reiterated our Neutral recommendation on Hologic (HOLX) with a target price of $16.00.

Hologic operates through four segments–Breasts Health, Diagnostics, GYN (Gynecology) Surgical, and Skeletal Health which contributed 45%, 33%, 17% and 5%, respectively, to total revenues during the quarter. While Breast Health and GYN Surgical increased 8.3% ($189.3 million) and 8.7% ($71.6 million), respectively, revenues from Diagnostics and Skeletal Health declined 1.5% ($137.4 million) and 2.1% ($22.4 million), respectively.

Hologic has grown both organically and inorganically over the last few years. The latest was the acquisition of Canada-based privately owned Sentinelle Medical, a leading provider of MRI breast coils, tables and visualization software.

Hologic’s current portfolio consisting of Selenia breast cancer screening system, Suros biopsy system and Mammosite radiation therapy will also have access to Sentinelle MRI breast coils. Apart from leveraging the existing distribution, Sentinelle will also be compatible with Hologic’s biopsy tools. Moreover, the two companies together will be better placed to target the growing market. The current MRI coil and CAD market valued at approximately $100 million, is expected to double in the next three years.

We expect Hologic’s Cervista HPV test, which was included in the portfolio following the acquisition of Third Wave Technologies, to contribute significantly to the top line in future. The other significant candidate in HPV testing market is Qiagen’s (QGEN) hybrid capture 2 (hc2). In July 2010, Hologic presented final data analyses evaluating the performances of Cervista HPV and hc2 where a statistical analysis of overall test accuracy found the two methods to be clinically equivalent.

With a wide range of products, Hologic has become an industry giant in the field of women’s health products. We expect revenues from the GYN surgical to increase with further acceptance of the Adiana system. Moreover, Hologic has launched the next generation NovaSure endometrial ablation system, which should also contribute to growth. Besides, the Dimensions 3D system is a step closer to approval, provided it receives favorable panel recommendation.

However, Hologic faces tough competition in a difficult economic climate. The economic uncertainty is delaying doctor visits, thereby hampering diagnostic revenues. The company is also exposed to lower hospital spending exacerbated by economic challenge.

HOLOGIC INC (HOLX): Free Stock Analysis Report

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