Hologic, Inc.
(Nasdaq: HOLX)
Bedford, Mass.
Web Site:
www.hologic.com
Hologic, Inc. is fast becoming the Amazon of women's health care. The company,
which specializes in diagnostic and medical imaging systems, bought
complementary Cytyc Corporation in October, making Hologic the warrior of
reckoning in the growing women's health market.
Hologic develops products for mammography and breast care, osteoporosis
assessment and general-use radiology. Cytyc's products cover a range of cancers
and women's health concerns, including cervical cancer screening, prenatal
diagnostics and partial breast radiation therapy. The combined company offers a
broad and diversified mix of products and services focused only on women's
health - a multibillion-dollar market growing 16% compounded annually.
Hologic, which already has proven its mettle in the face of competition, now can
tie its mammography and bone density products into Cytyc's networks in ob/gyn.
This will increase revenues and raise brand awareness - of particular importance
as the company moves into new markets. The combination should result in a
stronger financial base and more powerful product development operations.
Hologic's strong performance is mainly due to the ongoing increase in sales of
Selenia, its digital mammography system. This system is more effective than
analog systems at detecting abnormalities in breasts. Although it is more
expensive than most systems, many investors believe it will become the industry
standard. The combined company's research and development will focus on
furthering the development of existing digital detectors, enhancing Cytyc's
existing product lines and engineering new medical diagnostic and interventional
devices.
Analysts at Canaccord Adams estimate that Selenia now holds 54% of the $520
million U.S. digital market; they also cite other data showing that digital has
penetrated only 27% of the total mammography market in terms of units. The
potential market for Selenia alone could reach $1.4 billion. The investment
company said it believes Hologic can grow earnings at least 25% each year
through fiscal 2010.
Growing sales globally will be a main focus for the company in 2008. Hologic
plans to use Cytyc's international presence to help it move into international
markets. Cytyc has marketed its diagnostic and surgical products in Canada,
Europe, Australia and Hong Kong and has used a network of third-party
distributors in various other countries throughout the world, including Japan
and China. The combined company will establish new sales channels and maintain
existing ones. Hologic's international sales were 25% of the total in 2007.
Hologic has additional products in the pipeline, but these probably won't
meaningfully contribute to sales in the coming year. One such product,
tomosynthesis, turns a two-dimensional mammography image into three dimensions
and is an investor focus. As such, it could help to boost the stock before
contributing to sales.
Financial Results
First-quarter fiscal 2008 revenues totaled $371.4 million, a 128% increase
when compared to revenues of $163.2 million in the first quarter of fiscal 2007.
The increase was primarily attributable to the inclusion of Cytyc revenues for
the period from Oct. 22, 2007 (the merger date) to Dec. 29, 2007, which
approximated $158 million. For the first quarter of fiscal 2008, Hologic
reported a net loss of $358.6 million, or $3.31 per diluted share, compared with
net income of $16.1 million, or $0.30 per diluted share, in the first quarter of
fiscal 2007. Included in the first-quarter of fiscal 2008 results were charges
relating to the Cytyc merger of $370.0 million. The company's non-GAAP adjusted
net income for the first quarter of fiscal 2008 increased 213% to $61.4 million
compared to the company's non-GAAP adjusted net income of $19.7 million in the
first quarter of fiscal 2007.
Outlook
The company believes itself to be well-positioned to effectively cater to
the women's health market. Analysts are calling for EPS in 2008 to be $2.31
while 2009 EPS is estimated to be $2.89. Both estimates have been upwardly
revised in the past month and we expect this trend to continue throughout 2008.
Revenues for FY08 are expected to be $1.7 billion and grow 17% to $1.9 billion
the following year.
Concluding Remarks
We believe that Hologic stands out among its peers as the best company in
the women's health market. In addition to maintaining its market dominance,
Hologic could beat earnings estimates if tomosynthesis comes to market early or
synergies are realized sooner than expected after the Cytyc deal. We are looking
for the stock to reach $75 by the end of 2008.
