Tuesday, November 12, 2013

Feeling Sick: “Growth Challenged” Hologic Plunges on Disappointing Results

Shares of Hologic (HOLX) have plunged today after the maker of medical devices for women reported results that left investors searching for a diagnosis.

The Associated Press has the details:

Hologic said late Monday that it expects lower sales of ThinPrep pap tests, NovaSure endometrial ablations systems, and blood screening tests. Hologic also said sales of its older 2-dimensional Selenia digital mammography system will decline as it begins selling its newer Dimensions systems. The company expects to report adjusted net income of $1.32 to $1.38 per share in its new fiscal year, which started Sept. 29. It forecast $2.43 billion to $2.48 billion in total revenue, down from $2.49 billion in fiscal 2013.

Analysts had predicted much higher net income of $1.63 per share and $2.59 billion in revenue, according to FactSet.

Citigroup’s Amit Bhalla summarizes the good and the bad:

While HOLX beat the Street by $0.02 on the bottom-line, revenues came in light and F2014 guidance was below Street expectations. 3D mammo remains a positive (+50% Y/Y) and GPRO was up +11%, but ThinPrep (-13% Y/Y) and NovaSure weakness remain a headwind. Initial F14 guidance includes revs down -1-3% (Street expected +3%) and during this “transition” year, HOLX expects to complete more asset reviews/sales, further streamline the business, and begin a new $250M share buyback. While we believe these efforts are a positive, a $1.1B write-down on diagnostics (GPRO & ThirdWave) indicates that some businesses may need more time to recover – we remain Neutral-rated.

Canaccord Genuity’s Jason Mills and team are not pleased. They write:

HOLX's commentary at fall brokerage meetings portended a flattish outlook for FY14, but actual '14 guidance on the Q4 call painted an even worse picture of current fundamentals, in our view. While we recognize management is likely attempting to mitigate quarterly misses and suggested FY15 should stabilize, we think growth will remain challenged, thus we downgrade to HOLD and lower our price target to $19, based on our five-year DCF, which uses a generous 14x terminal multiple (notwithstanding low/mid-single-digit FCF CAGR) and 7% discount rate. We would not be constructive buyers unless weakness is significant.

Does this count? Shares of Hologic have dropped 12% to $20.07.

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