What’s Happening With Hologic Stock?

HOLX: Hologic logo
HOLX
Hologic

Hologic stock (NASDAQ: HOLX), a medical devices company focused on women’s health, has seen a 19% fall this year, faring slightly better than the broader S&P500 index, down 24%. Even if we look at the longer term, HOLX stock, with 45% returns from levels seen in late 2017, has slightly outperformed the S&P 500 index, up around 35%. However, HOLX stock now looks fairly valued at around $62, as discussed below.

This 45% rise for HOLX stock since late 2017 can primarily be attributed to 1. Hologic’s revenue rising a significant 69% to $5.2 billion over the last twelve months, compared to $3.1 billion in 2017, 2. a 10% fall in its total shares outstanding to 251 million, driven by $1.9 billion spent on share repurchases over this period, partly offset by 3. a 23% fall in the company’s P/S ratio to 3.0x trailing revenues currently, compared to 3.9x in 2017. The increase in revenue and a fall in shares outstanding have meant that Hologic’s revenue per share rose 88% to $20.82 over the last twelve months, vs. $11.08 in 2017.

Hologic’s sharp revenue growth over the recent years was primarily driven by its diagnostics business, which benefited from Covid-19 testing. Diagnostics segment revenue surged 3x to $3.6 billion in 2021, compared to 1.2 billion in 2019, before the pandemic. Now that the Covid-19-induced growth is over, Diagnostics revenue is declining (down 13% y-o-y for the nine months period ending June 2022). However, it should be noted that the company’s diagnostics business is not limited to Covid-19 tests; it sells the Panther systems used to run different types of tests, bolstering revenue growth in the long run. With these systems already in place, the company can look forward to recurring revenues from other tests. Furthermore, last year, Hologic acquired Mobidiag – an acute care molecular diagnostic testing company – for $808 million, which will likely bolster its revenue growth in the future.

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While the company has good prospects, supply chain disruptions, semiconductor chip shortage, rising costs, and a decline in Covid-19 testing demand are some factors that have weighed on its stock price growth. Although Hologic’s operating margin has seen strong growth from -4.2% in 2019, before the pandemic, to 45.3% in 2021, it has fallen slightly to 38.9% for the last twelve months, owing to rising costs. For perspective, Hologic’s operating expenses increased 6% y-o-y for the nine months period ending June 2022, compared to a 9% revenue fall. Our Hologic Operating Income Comparison dashboard has more details.

Given the near-term headwinds, Hologic is expected to see over 15% top-line contraction this fiscal to over $4.8 billion (per the consensus estimate). Assuming the current share count of 251 million (reported for Q3 fiscal 2022), we arrive at the expected revenue per share of $19.04 for the full fiscal 2022. Now, at its current levels, HOLX stock is trading at 3.3x forward expected revenues, compared to the last three-year average of 3.5x. Given the expected decline in the Diagnostics business in the near term, a moderate downward revision in the trading multiple makes sense. That said, now that HOLX stock has already seen a 19% fall this year and its P/S multiple is lower than the historical average, we believe that it is appropriately priced.

While HOLX stock looks appropriately priced, it is helpful to see how Hologic’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Heico vs. Abbott.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 HOLX Return -4% -19% 54%
 S&P 500 Return 1% -24% 61%
 Trefis Multi-Strategy Portfolio 1% -26% 195%

[1] Month-to-date and year-to-date as of 10/11/2022
[2] Cumulative total returns since the end of 2016

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