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How Hologic Is a Turnaround in Medical Diagnostics

The medical device company controls about 65 percent of the digital mammography market.

Hologic (HOLX), a leading provider of mammography equipment and diagnostic services for obstetricians and gynecologists, has made impressive progress on its turnaround story since CEO Stephen MacMillan took the helm in 2013, notes Peter Staas, editor of Capitalist Times.

The medical device company controls about 65 percent of the digital mammography market, thanks to its installed base of existing equipment and leadership in the transition to advanced 3-D solutions.

The company’s 3-D Genius systems have demonstrated superior accuracy in clinical studies and boast shorter scan times than the competition, while the cost of upgrading one of its existing 2-D systems is significantly less expensive than buying a new mammography machine.

Although the U.S. market for 3-D mammography equipment has matured, revenue from this business continues to grow in the mid-single digits and associated service contracts drive a highly visible stream of cash flow.

Hologic appeared to be on the up and up earlier this year until its entry into the medical aesthetics business via the $1.44 billion acquisition of Cynosure — which offers products for non-invasive body contouring, hair removal and skin revitalization.

At first blush, the acquisition appears to be an unmitigated disaster, with segment sales suffering year-over-year declines in two consecutive quarters — a far cry from the 20 percent growth that management had touted when Hologic announced the deal.

Hologic attributed these disappointing results, which forced the company to lower its guidance for revenue growth, to the defection of sales representatives in the first half of the year.

The company has sought to address these challenges by installing Kevin Thornal as the segment’s president, the same executive who oversaw the successful reorganization of Hologic’s international business.

At this point, the market’s inordinate focus on Cynosure’s headwinds obscures the potential for 2018 results to surprise for the upside, buoyed by the launch of innovative new products in breast health and diagnostic testing, as well as any signs that management has turned around the medical aesthetics business. Hologic rates a Buy up to $42 per share for aggressive investors.

Peter Staas is editor of Capitalist Times.

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