Is Hologic a Worthwhile Investment?

With shares of Hologic Inc. (NASDAQ:HOLX) trading at around $22.91, is HOLX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Hologic just reported record revenue of $631.4 million in Q1, which was mostly due to year-over-year revenue growth in the company’s three biggest segments: Breast Health, Diagnostics, and GYN Surgical. GAAP EPS came in at $0.01. Non-GAAP EPS was $0.38.

Hologic had many interesting developments over the past few months. In December, a $60 million cash settlement was received from K-V Pharmaceutical Company. In January, Hologic reached an agreement to sell its LIFECODES business to Immucor for $85 million in cash. Also in January, Hologic announced a 3D mammography screening technology that increases cancer detection while reducing the number of false positives. In addition to those developments, there have been FDA clearances over the past month for Hologic’s APTIMA Trichomonas Vaginalis Assay for use on fully-automated PANTHER system, and for contrast-enhanced digital mammography for improved visualization of breast tissue.

Your 1 Feature Stock Pick for February is hot off the press. Click here to discover it now!

Hologic believes its innovative products will continue to drive growth for the foreseeable future. However, that type of statement is expected from any company, which is why we need to look at the big picture prior to forming an opinion on the stock…

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Hologic is weak. This indicates poor debt management. The balance sheet is also in negative territory. Cyberonics Inc. (NASDAQ:CYBX) and NuVasive (NASDAQ:NUVA) both have stronger debt-to-equity ratios, and Cyberonics has a stellar balance sheet. Cyberonics has acquisition target potential written all over it. Please note that these three companies aren’t direct competitors.    

Debt-To-Equity

Cash

Long-Term Debt

HOLX

1.71

$560.43 Million

$5.07 Billion

CYBX

0.00

$118.50 Million

$0

NUVA

0.76

$242.63 Million

$403.45 Million

 

T = Technicals on the Stock Chart Are Mixed    

Hologic has performed well over a three-year time frame.

1 Month

Year-To-Date

1 Year

3 Year

HOLX

11.21%

14.49%

8.58%

43.28%

CYBX

-11.83%

-11.04%

38.09%

168.60%

NUVA

3.43%

9.18%

-1.63%

-38.57%

 

At $22.91, Hologic is currently trading above all its averages.

50-Day SMA

20.94

100-Day SMA

20.80

200-Day SMA

19.65

 

E = Earnings Have Been Inconsistent        

Earnings had been improving from 2009 to 2011, but that trend came to a halt in 2012. However, revenue has increased on an annual basis since 2009.

2008

2009

2010

2011

2012

Revenue ($)in billions

1.67

1.64

1.68

1.79

2.00

Diluted EPS ($)

-1.69

-8.64

-0.24

0.59

-0.28

 

We already know what happened this quarter. Now let’s take a look at previous quarters.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in millions

467.04

472.71

471.16

470.23

588.55

Diluted EPS ($)

0.10

0.08

-0.15

0.09

-0.30

 

T = Trends Might Support the Industry

Hologic is confident about future potential, but also concerned about many circumstances that are out of the company’s control. The following factors have the potential to affect Hologic’s business: state of global economy, healthcare reform legislation, and foreign currency fluctuations.

Conclusion

Hologic’s valuation looks good with a Forward P/E of 12.70. Cash flow is decent, and analysts seem to like the stock. On the negative side, margins aren’t impressive and the company doesn’t show consistent profits.

Overall, this is an innovative company with great potential, but it’s also highly susceptible to exterior circumstances. Therefore, Hologic is a WAIT AND SEE.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.