Hologic: Targeting Women's Health

05/29/2015 8:00 am EST

Focus: STOCKS

Our latest featured buy-rated stock develops and manufactures diagnostic and medical imaging systems, primarily serving the healthcare needs of women, explains David Toung of Argus Research, a leading research firm known for its independence from Wall Street.

Hologic, Inc. (HOLX) focuses on osteoporosis assessment, breast-cancer detection, direct capture X-ray detectors for digital radiography applications, and mini C-arm imaging for orthopedic applications.

Its customers include hospitals, imaging clinics, and private practices, as well as healthcare organizations and pharmaceutical companies.

The company delivered outstanding fiscal 2Q15 results and, in our view, is poised for further strong performance going forward. With new operating initiatives in place, we think the company can sustain robust growth.

Management now expects adjusted FY15 EPS of $1.57-$1.59, up from a prior view of $1.54-$1.57. It has also raised its revenue forecast to $2.6-$2.62 billion from $2.57-$2.60 billion, implying currency-neutral growth of 5.8%-6.6%.

Based on the updated guidance and strong 2Q results, we are raising our EPS estimates to $1.61 from $1.59 for FY15 and to $1.74 from $1.71 for FY16. As such, we are boosting our EPS estimates and raising our target price to $43 from $38.

While improving market conditions benefited sales in the second quarter, we believe that the results also reflected stellar sales and marketing execution under the leadership of CEO Stephen MacMillan and other top executives.

While Hologic’s debt load remains higher than that of other med-tech companies in our coverage universe, we are encouraged by management’s efforts to pay down debt.

The company is also generating healthy free cash flow. As its balance sheet strengthens, Hologic should have more financial flexibility to make acquisitions or buy back shares.

HOLX shares trade at 19.5-times our FY16 EPS estimate, above the mean of 18.2 for our coverage universe of med-tech stocks.

We believe that HOLX merits a premium valuation based on its superior growth opportunities. We are reiterating our Buy rating and raising our target price by $5 per share to $43.

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