We have reaffirmed our Neutral recommendation on
) with a target price of $21.00.
The company's third quarter 2012 adjusted earnings of 35 cents
per share were ahead of the Zacks Consensus Estimate by a penny,
though revenues of $470.2 million were short of the consensus
estimate. The reported quarter was challenging for Hologic with
economic uncertainties in Europe, slower sales cycles and
increasing pricing pressure. Apart from margin erosion on European
sales, revenues were impacted by more than $4 million because of
Breast Health is the biggest segment of the company which
contributed 45% of revenues during the reported quarter. Within
this segment, sales of Dimensions continued to gain traction and
represented 71% of digital mammography revenues and 60% of units.
Although product revenues in the third quarter had slowed with
shift in orders from 2D systems to the 3D tomosynthesis systems,
the number of 3D systems in the domestic backlog increased 76%
sequentially. Besides, tomosynthesis upgrades represented
approximately 25% of total tomosynthesis unit sales in the third
Based on installations made till the third quarter, the company
has achieved 45% of its goal to place 500-700 3D systems (and
targeting 60% at the end of fiscal 2012) in the US within the first
two years of approval. Moreover, we are encouraged to note that the
company has already achieved the 60% target after taking into
account units in backlog (that will be shipped in the fourth
quarter). We believe that a favorable reimbursement decision for
tomosynthesis, likely next year, should further drive growth.
Moreover, clinical results from some key studies are expected to be
published by the end of 2012.
Meanwhile, Hologic's Diagnostics business is expected to
strengthen with the acquisition of Gen-Probe. This franchise
recorded 10% growth with three-fourth coming from core diagnostics
businesses, primarily ThinPrep pap test and the balance coming from
molecular diagnostics products. We are also encouraged to note that
the launch of the Cervista HTA system has been well received in the
US market, with 30 units in the domestic market already installed,
resulting in positive customer feedback.
We are encouraged by Hologic's focus on the international market
that contributed 27% of its revenues during the reported quarter,
up from 25% in the prior quarter. Revenues from this region
increased 21% or 25% after considering unfavorable currency.
Despite the persistent economic uncertainties in Europe, Hologic
has been building its international infrastructure and fortifying
management resources, particularly in the emerging markets of
China, Latin America, the Middle East and Eastern Europe.
Recently, Hologic receivedan unfavorable ruling in a patent
infringement suit with
Smith & Nephew
). The suit involved the sale of MyoSure tissue removal device,
which was included in Hologic's portfolio with the acquisition of
Our neutral recommendation is backed by a Zacks #3 Rank ('Hold')
in the short term.
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