Hologic Inc.'s (HOLX, Financial) sales skyrocketed to $1.2 billion in the company's fiscal fourth quarter, driven by demand for the company's Covid-19 tests. Revenue for the Marlborough, Massachusetts-based company were up nearly 56% in the quarter compared to the same period a year earlier. Earnings per share jumped more than 200% year over year and crushed the Zacks consensus estimate, as did the company's full-year adjusted earnings of $3.98.
In guidance for the first quarter of 2021, Hologic management said revenue and earnings should both beat the Zachs estimate.
Shareholders were rewarded when the stock hit an all-time high of nearly $77.50 last week before retreating to $69 on Monday, perhaps on the news that Pfizer Inc. (PFE, Financial) and its partner BioNTech SE (BNTX, Financial) have developed an effective coronavirus shot. Investors may have concluded that a vaccine would reduce the need for wide testing, but that view is speculative at this point. Either way, Hologic stock is still up nearly 180% from its 52-week low.
The 19 analysts who follow the company rate it between a buy and strong buy, according to Yahoo Finance, with a median target price of just over $85. Of course, those ratings likely came in before the company reported results.
Hologic's coronavirus tests, including kits for its high-throughput Panther and Panther Fusion systems, led the way in the fourth quarter, helping to mitigate drops in other areas of its business. The declines were in diagnostics for blood, cytology and newborn testing, as well as among its gynecological surgery, mammography and osteoporosis screening divisions.
Hologic is running out of room to make its Covid tests. Seeing that, the federal government has stepped in, awarding the company nearly $120 million to increase production capacity.
Given the recent spike in coronavirus cases and deaths, it still appears diagnostic testing is not going to wane anytime soon. That makes the shares of Hologic appealing. The concern is what does the company do once testing demand does abate? That's important because other segments of its business are showing declining sales. And in the U.S., the picture wasn't pretty; domestic revenue declined more than 16% in the fourth quarter.
On the plus side, by the time the coronavirus is under at least some control, the company's installed base of equipment will be substantially higher. Hologic hopes to place 500 of its Panther systems this year, compared to over 200 systems it placed annually over the last five years, according to stock research company Tefis. The result is that when Covid testing slows down or disappears, Hologic will have its systems in place that can run other tests.
To bolster its business, Hologic may pursue acquisitions. During the fourth-quarter earnings call, Evercore ISI analyst Vijay Kumar asked management if the company is looking to make a deal given the cash windfall from Covid testing.
In response, President and CEO Stephen P. MacMillan said the company is looking at some ways to broaden its diagnostics business—through additional products and in certain areas of the world, but nothing too expensive.
"I do think we've kind of set up the rough principle of staying within the constraints of our annual cash flow, and I think that continues to be exactly what we're thinking about," MacMillan said.
Disclosure: The author has a position in Pfizer.
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