Company Reports

Hologic’s strong showing in its fiscal second quarter puts the firm on track to meet our full-year expectations, and we’re leaving our fair value estimate intact. With Hologic reaching the end stages of its reset from covid disruption, we’re pleased to see the firm’s underlying non-covid business maintain its recent strength. Quarterly base business revenue rose 5% in constant currency year over year. Importantly, non-covid-19 molecular diagnostics revenue increased by 11% organically. Though we don’t expect double-digit growth to be maintained, this strength gives us confidence that Hologic’s molecular business has made a quantum leap over fiscal year 2019, thanks to the significantly enlarged installed base of Panther platforms and the expanded assay menu. All of this reinforces our favorable view of Hologic’s narrow economic moat.

Narrow-moat Hologic’s fiscal first-quarter reflected the firm’s navigation of the tail end of COVID-19 disruption, and considering the underlying strength of the firm’s non-COVID-19 business, management raised its outlook. However, we’re leaving our $70 fair value estimate unchanged given our projections for full-year 2024 remain bounded by this new guidance. Quarterly consolidated revenue fell roughly 6% year over year, driven by waning COVID-19 diagnostic demand. Excluding COVID-19 sales, quarterly diagnostics revenue fell 1%, which was substantially softer than the double-digit growth seen in the previous two quarters. Nevertheless, breast health and surgical posted solid 12% and 5% growth, respectively, in the quarter to more than offset diagnostics.

Hologic posted fiscal fourth-quarter results that slightly exceeded our estimates on the top line, but this was offset by slightly lower earnings. We are leaving our $70 fair value estimate unchanged. The firm continues to manage the reverberations of demand for pandemic tests softening throughout the year, and we’re pleased to see quarterly non-COVID-19 revenue rise 17% in constant currency, which reflects solid demand for Hologic’s nonpandemic products, especially in breast health. Despite the declines in COVID-19 revenue, we think the pandemic-fueled expansion of the Panther installed base has reinforced Hologic’s narrow economic moat. By expanding the base and number of clients touched by the associated switching costs, Hologic has an opportunity to drive more assays through more Panther platforms.

Under CEO Stephen MacMillan's watch, Hologic has been able to focus on structural competitive advantages, improve its balance sheet, and judiciously step into complementary markets, which has smoothed out the vagaries of product cycles.

Hologic’s fiscal third-quarter results were another unsurprisingly mixed bag, putting the firm largely on track to meet our full-year expectations, and we’re holding steady on our $70 fair value estimate for now. As expected, further weakening demand for COVID-19 testing posed a headwind, while nonpandemic molecular diagnostic tests saw solid growth. We think this quarter was an inflection point though—for the first time in seven quarters, the declines in COVID test revenue were almost fully offset by the firm’s remaining nonpandemic businesses, which displayed particular strength in the breast health and gynecological surgical product lines. We continue to think both the diagnostics and breast imaging businesses benefit from switching costs that support Hologic’s narrow economic moat.

Though Hologic's fiscal second-quarter results were dominated by declines in COVID-19-related diagnostics that drove consolidated quarterly revenue decline of 28% in constant currency, double-digit growth in nonpandemic product lines was impressive, even after taking the soft prior-year period and the addition of two extra selling days. Nonetheless, the pressure from the loss of COVID-19 tests leaves Hologic on track to meet our full-year expectations and, as such, we're leaving our fair value estimate unchanged. The firm's credible efforts to innovate in surgical and breast health, as well as expand assays in diagnostics, underscores our favorable view of Hologic's narrow economic moat. We anticipate the firm will continue to enlarge its assay library over time, thereby leveraging the switching costs associated with its diagnostic platforms.

Hologic’s fiscal first quarter outpaced our expectations, despite the ongoing headwind of declining COVID-19 diagnostics. The impressive underlying growth in nonpandemic diagnostics should play a larger role than we’d expected in softening the consolidated decline in 2023, and we plan to moderately raise our fair value estimate to reflect that strength. We applaud Hologic for how it navigated the pandemic, both extending itself to meet overwhelming demand in 2020 for its diagnostic platforms, and then parlaying the related cash windfall and investing in more types of assays. Management’s strategy of bulking up its array of molecular diagnostic test menu to take advantage of its newly enlarged base of installed Panther platforms seems to be paying off. Through the pandemic, Hologic has managed to reinforce its narrow economic moat through expansion of switching costs.

Hologic posted fiscal fourth-quarter results that highlighted the firm’s ability to balance declines in COVID-19 tests with acceleration of its nonpandemic business. Following some minor adjustments to our 2023 assumptions, we’re leaving our fair value estimate unchanged. We give management much credit for its skillful navigation of both the COVID-19 opportunity in 2020-21 and the diminishing demand in 2022. Importantly, we think the firm’s investment of its COVID-19 windfall in expanding its test menu should put Hologic on a path toward faster diagnostic growth than seen before the pandemic. All of this underscores our confidence in Hologic’s narrow economic moat, and we expect to see the firm further leverage the switching costs that are associated with its diagnostic platforms.

Under CEO Stephen MacMillan's watch, Hologic has been able to focus on structural competitive advantages, improve its balance sheet, and judiciously step into complementary markets, which has smoothed out the vagaries of product cycles.

Though Hologic’s fiscal third-quarter performance reflected ongoing declines due to softening demand for COVID-19 PCR tests, the quarterly revenue decline of 14% was considerably less severe than we’d been expecting, perhaps cushioned by the surge in the omicron variants. We’re holding steady on our fair value estimate, as slightly better-than-expected quarterly revenue results were generally offset by greater pressure on margins that should last into 2023. Moreover, Hologic remains in a somewhat tricky spot and must navigate further decline in COVID-19 testing by ramping up sales for its newly-expanded menu of non-COVID-19 molecular tests. We were pleased to see quarterly organic non-COVID-19 molecular diagnostic revenue rise 22% year over year. Although this wasn’t enough to completely offset the weaker COVID-19 sales, we think it bodes well for Hologic’s longer-term prospects to grow into a stronger competitor in the molecular market. On the whole, we’ve been impressed with management’s judicious decisions to optimize the COVID-19 opportunity and send that cash into nonpandemic business that offers growth over the long haul. All of this gives us confidence in Hologic’s narrow economic moat.

Hologic reported fiscal second-quarter results that featured revenue declining 7% year over year, which was less severe than we’d been expecting thanks to the omicron surge that bolstered demand for COVID-19 assays again. However, we’re holding steady on our fair value estimate, as this quarter’s outperformance on the top line was generally offset by margin erosion thanks to test mix and a resumption in sales and marketing spending. We remain confident in the firm’s narrow economic moat, especially now that it has significantly expanded its installed base of Panther platforms, which sets the stage for an ongoing stream of assay revenue.

Hologic delivered solid fiscal first-quarter results that generally were consistent with our expectations on the top and bottom lines, and after a few small adjustments to our near-term assumptions, we’re leaving our fair value estimate intact. Demand for COVID-19 tests and supplies continues to dominate the immediate prospects for Hologic, and with the trough between the delta and omicron variants falling in the fiscal first quarter, declines in pandemic testing drove total quarterly revenue decline to 9%. In particular, quarterly worldwide molecular diagnostics revenue fell 18% in constant currency year over year. We expect further declines in pandemic-related tests through fiscal 2022 before stabilizing at a significantly lower level by year end. Despite falling demand for COVID-19 tests, we were pleased to see Hologic’s breast health and non-pandemic molecular diagnostics grow at 8% and 10%, respectively, year over year. We remain confident in the firm’s narrow economic moat, especially thanks to the expanded installed base of Panther diagnostic platforms.

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.

Under CEO Stephen MacMillan's watch, Hologic has been able to focus on structural competitive advantages, improve its balance sheet, and judiciously step into complementary markets, which evens out the vagaries of product cycles. Hologic controls roughly 65% of the U.S. digital mammography market and leads the way in 3D mammography. While 3D adoption has slowed, Hologic's clinical data still gives it an edge over its larger competitors, and there are still opportunities to sell ancillary accessories for mammograms and biopsies.

While Hologic’s fiscal third-quarter results reflected a dramatic shift thanks to the pandemic receding in the U.S., we found little that was surprising, and the firm generally looks on track to meet our full-year expectations. As such, we’re leaving our fair value estimate unchanged. Narrow-moat Hologic, on net, has been a prime beneficiary of COVID-19 with growth in its molecular diagnostics business soaring by leaps and bounds through the first fiscal quarter 2021, which more than offset deep declines in its breast health unit. However, the slowdown in COVID-19 PCR testing made an emphatic appearance in the fiscal second quarter, and even considerable gains in the breast health division were unable to fully compensate.

Hologic posted another quarter of stellar results on the back of the pandemic, though there are signs this tailwind is losing steam, which caused shares to pull back after the market close. We’ve made some modest adjustments to our standing assumptions for the diagnostics segment to decline year over year in the second half of the fiscal year, but these did not materially shift our fair value estimate. The pandemic has afforded Hologic a major opportunity to increase its installed base of diagnostic platforms. We think Hologic has solidified its narrow economic moat by growing its global installed base by roughly 38% in the last 12 months, which has introduced the switching costs associated with its in vitro diagnostic platforms to a new set of customers.

Thanks to the pandemic, Hologic delivered an astounding fiscal first quarter that featured organic growth of 104% year over year, driven by molecular diagnostics. We’re modestly raising our fair value estimate after adjusting our expectations for this strength to continue through this calendar year followed by softening in 2022 and 2023 as herd immunity is achieved globally. If the new viral variants from Brazil or South Africa become widespread, or if further obstacles crop up to slow vaccinations, we might adjust our expectations for demand to last into 2022. We give narrow-moat Hologic kudos for increasing its production capacity of the Panther platform machines, as well as the consumable SARS-CoV-2 tests. Seeing this display of operational excellence gives us more confidence that Hologic is well equipped to integrate the various acquisitions it has made of late to beef up its product portfolio.

Under CEO Stephen MacMillans' watch, Hologic has been able to focus on structural competitive advantages, improve its balance sheet, and judiciously step into complimentary markets, which evens out the vagaries of product cycles. Hologic controls roughly 65% of the U.S. digital mammography market and leads the way in 3D mammography. While 3D adoption has slowed, Hologic's clinical data still gives it an edge over its larger competitors, and there are still opportunities to sell ancillary accessories for mammograms and biopsies.

Under CEO Stephen MacMillans' watch, Hologic has been able to focus on structural competitive advantages, improve its balance sheet, and judiciously step into complimentary markets, which evens out the vagaries of product cycles. Hologic controls roughly 65% of the U.S. digital mammography market and leads the way in first 3D mammography. While 3D adoption has slowed, Hologic's clinical data still gives it an edge over its larger competitors, and there are still opportunities to sell ancillary accessories for mammograms and biopsies.

Hologic wrapped up the fiscal year with strength thanks to demand for COVID-19 diagnostic tests, and we expect to modestly raise our fair value estimate once we incorporate full-year results in our projected cash flows. In the fourth quarter, Hologic’s consolidated revenue growth of 54% was driven by blow-out results from its molecular diagnostics business, which more than offset double-digit declines in most other product categories, including breast health, gynecological surgery, and skeletal health. We remain confident that Hologic’s narrow economic moat, partially stemming from switching costs, is intact. With the pandemic providing a strong tailwind for expanding Hologic’s installed base of Panther platforms, we gave some thought to turning the firm’s moat trend positive. However, considering the overwhelming demand we’ve seen for all molecular diagnostic platforms across companies this year, we don’t believe Hologic’s position is strengthening any more than any of its rivals.