Hologic Benefits From Delta Variant and Finishes Fiscal Year in Strong Fashion; No Change to Our FVE

Hologic reported fiscal fourth-quarter results that ran slightly ahead of our expectations, but we don’t expect a significant shift in our fair value estimate, as the strong top line growth is generally offset by our expectation for profitability to materially decrease as demand for COVID-19 assays softens in 2022. Hologic benefited again as the delta variant drove test volume in late summer and early fall, though we aren’t banking on another variant surge at this point. We think the pandemic has substantially reinforced Hologic’s narrow economic moat through the significant expansion of its Panther installed base. This expansion of switching costs to more customers puts Hologic in a strong position, if it can generate interest in its growing portfolio of non-pandemic molecular tests. While that remains an open question, we are considerably more bullish on Hologic’s molecular diagnostic franchise now than in early 2020 mainly because the firm has wisely invested the pandemic proceeds in the acquisition of a broader range of molecular tests. We would argue the firm’s test selection is far stronger today, compared with its historical focus on sexually transmitted diseases.