Hologic Earnings: Green Shoots From Base Business Emerge as COVID-19 Demand Declines

Though Hologic’s HOLX 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.

We were pleased to see breast health and surgical grow 26% and 25%, respectively, in the quarter. In particular, the greater availability of microchips has allowed Hologic to ramp up shipments of its 3D mammography gantries and chip away at the backlog of orders. Importantly, management indicated customers haven’t been cancelling orders despite the delays. We think this may reflect customer preference for Hologic’s technology, which is backed up by substantial clinical data on its ability to more accurately detect suspicious abnormalities.

Non-COVID-19 molecular diagnostics also posted stellar growth at 24% year over year. While the firm didn’t update its Panther platform utilization, we’re comfortable that there’s been solid uptake of its enlarged assay menu. We expect this strength to last into next year, especially considering the recent Centers for Disease Control and Prevention report on worrisome sexually transmitted infection, or STI, trends. Growing concerns over STIs play right into Hologic’s long-standing area of molecular diagnostic expertise.