Despite an almost 145% increase in the share price of Hologic (NASDAQ: HOLX), since the lows in March of this year, at the current price of around $ 70 per share, we believe the HOLX share has more room for growth. Hologic is best known for its medical devices for diagnostics, surgery, and medical imaging, and HOLX stock rose $ 29 to $ 71 from the recent low, significantly outperforming the S&P which was up 52%. The hologic stock is also up 65% from levels seen in early 2018, two years ago.
Part of this increase over the past 2 years is justified by the approximately 10% growth in Hologic revenues from 2017 to 2019, as well as a 4% decrease in total shares outstanding due to share buybacks. . Higher incomes and lower stocks meant income per share rose 14% from $ 10.93 to $ 12.50. Given the growth in revenue per share, the company’s multiple P / S has also grown. We believe the stock should see further upside despite the recent rally. Our dashboard, ‘What factors caused a 65% change in Hologic inventory between 2017 and today?‘, has the underlying numbers.
Hologic’s P / S multiple fell from 3.9x in 2017 to 4.2x in 2019. While the company’s P / S is 5.7x now, there is potential for upside, given of the company’s revenue growth this year.
So what is the likely trigger and when is the right time for further improvement?
The global spread of the coronavirus has led to increased demand for testing, which bodes well for Hologic, given that the US FDA has granted emergency use clearance for Hologic’s Panther Fusion SARS-CoV-2 to detect the coronavirus. This is important given the increasing number of cases in the United States. The company shipped 13 million Covid tests in the fiscal third quarter which ended in June. Coronavirus tests are expected to remain high around the world in the coming months, which will drive Hologic revenue growth, especially now that the US FDA has approved Hologic’s Covid-19 test for asymptomatic people.
By the time the coronavirus threat abates, the company’s installed base has reportedly increased significantly. The company aims to place 500 Panther systems this year, compared to the more than 200 systems it has placed annually over the past 5 years. As such, labs will continue to use Panther systems for further testing, once demand for Covid-19 testing decreases. The higher the installed base, the higher the demand for services, which currently represents 18% of the company’s total revenue.
Looking at the economy as a whole, the actual recovery and its timing depend on containing the spread of the coronavirus. Our dashboard Trends in Covid-19 cases in the United States provides insight into the spread of the pandemic in the United States and contrasts with trends in Brazil and Russia. Following the Fed’s stimulus – which set a floor on fear – the market was ready to “look through” the current period of weakness and take a longer-term view. With investors focusing their attention on the 2021 results, valuations become important in finding value. Although market sentiment may be volatile, and evidence of a rise in new cases could scare investors again.
The company’s expected revenue for fiscal 2021 now stands at $ 4.3 billion, reflecting a 28% growth from the 2019 figure of $ 3.4 billion. Assuming no change to the outstanding shares of $ 260 million means income per share of $ 16.53. At the current market price of $ 71, HOLX stock is trading at 4.3 times its estimated earnings for 2021, in line with levels seen in recent years. That said, now that the company’s installed base is growing at a faster rate and this will likely lead to increased recurring revenue over the next several years, investors may assign a higher valuation multiple to Hologic in the future, which will cause the stock to rise.
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