If you’ve never heard of Hologic (NASDAQ: HOLX), then it may be a good time to take a look at this medical equipment maker. The company shot up in today’s trading session. The biggest reason for this surge was Hologic’s impressive earnings report. It brought in $0.82 per share. That’s down substantially against figures from this time last year when the company brought in $1.61 per share. However, it was still well above expectations, as the company easily beat TipRanks projections calling for $0.62 per share.
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Company officials noted that the company saw “unprecedented strength” across its primary line of businesses. HOLX posted revenue of $953.3 million as well. This was also down against last year’s figures—last year, the company brought in $1.32 billion—but was more than 10% higher than consensus estimates.
Hologic may have done terribly against last year’s figures, but since everyone was expecting so much worse, the company ended up coming out ahead. However, there are several red flags connected to Hologic that can’t readily be ignored.
I’m neutral on the company at this point; while it does have a solid position in a comparatively recession-proof industry, there’s a lot about this company itself that will be difficult to overcome.
Is Hologic a Good Stock to Buy?
Turning to Wall Street, Hologic has a Hold consensus rating. That’s based on two Buys and four Holds assigned in the past three months. The average Hologic price target of $76.75 implies just 3.98% upside potential. Analyst price targets range from a low of $70 per share to a high of $86 per share.
The company’s only real high point in investor sentiment is with hedge funds. Its sentiment is considered “very positive,” as hedge funds bolstered their collective positions by 161,300 shares last quarter.
A look at the company’s financials offers a less-than-positive picture as well. The company’s revenue has been in decline for the last four quarters now. The December 2021 quarter saw the company hit a spike of $1.47 billion in revenue.
That dipped slightly to $1.44 billion in March 2022. In June 2022, that slid to just $1 billion even, and now, the latest quarter’s figures cap off a streak of decline.
Nonetheless, the company’s cash reserves have been on the rise, going from $827.6 million in June 2021 to $2.34 billion in September 2022. That will give it a significant cushion and allow it to better weather downturns.
Some might call it a good opportunity for expansion, but given the macroeconomic environment, it might be better to keep that reserve in reserve in case of a further downturn.
Standing Still, or a Springboard to Greater Things?
For many investors, a stable proposition in a macroeconomic environment that’s rapidly souring would be worthwhile enough to consider, and certainly, Hologic has done a marvelous job of maintaining stability.
Reports note that Hologic’s earnings are more than enough to cover its debt servicing expenses. The company’s earnings before taxes and interest are enough to cover interest expenses more than 21x over.
There are even some new developments for the company coming up. Hologic recently inked a deal with Google Cloud to bring in a new set of tools for medical imaging. Hologic is set to use these tools to bolster its cervical cancer diagnostic systems.
Since Hologic has an acknowledged focus on women’s health, such a move would help it further distinguish itself in the market. Given that Hologic recently sponsored the Mary J. Blige “Good Morning Gorgeous” tour in Nashville, that cements Hologic’s position more and gives it some key marketing advantages as well.
Some analysts even believe that Hologic can parlay its gains from the COVID-19 era into long-term growth. That’s not out of line, considering some of the company’s key numbers.
Conclusion: Not Much Upside Potential Left for HOLX
The problem for Hologic right now is that it’s got almost as many paths to victory as it does failure. It’s pushing very close to its average price target. Suggesting that it has much room for growth basically suggests that everyone’s undervaluing this stock. That’s tough to agree with, especially with the way things are right now.
Granted, it’s a fairly major company in a solid niche. Healthcare is one of the last things to get cut when trying to conserve cash. Looking for continued gains here may not be out of line, but there are some signs that such a rise won’t happen.
That’s why I’m neutral on Hologic right now. Its chances to continue gaining are likely almost the same as its chances to slide from current levels.
