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Stock Report: Hologic (HOLX)

Stock Report: Hologic (HOLX) - HE II HOLX 3 30 13

THE HEDGEYE EDGE

HOLX calls itself the “Women’s Health Company”.  Its principal product lines are Breast Health (predominately mammography) and Diagnostics.  HOLX is the US market leader in both mammography and Pap Tests. 

 

The company has recently had difficulties with its Breast Health product line in F1Q13 (4Q12), and HOLX shares lost ground on the earnings release.  We see this as buying opportunity as we view the current Breast Health weakness as temporary in nature, and not representative of its long-run potential.  

 

In addition to its Breast Health business, we remain bullish on its Diagnostics segment, which is the company’s largest segment.  In the near-term, we expect HOLX Diagnostics to benefit from both rising physician traffic and a recovery in US births.  Longer-term, we see the HOLX’s Diagnostic segment as one of the largest beneficiaries to the Affordable Care Act insurance expansion set to begin in 2014. 

TIMESPAN

INTERMEDIATE TERM (the next 3 months or more)

We’re expecting improving trends in F2Q13 (1Q13) in its Breast Health Segment, and we are already seeing signs of improvement in the macro indicators we follow.  We expect the stock to rebound as the concerns over the Breast Health segment are mitigated by improving trends.

 

LONG-TERM (the next 3 years or less)

HOLX may be the most levered name in the Healthcare space to the pending Insurance Expansion set to take place beginning 2014.  We see a long run-way in both the Diagnostic and Breast Health segment from the newly-insured members.  Within Breast Health, Hologic is at the beginning stages of a long term capital cycle led by their launch of 3D-Tomosynthesis technology and capacity constraints emerging at the customer level.

ONE-YEAR TRAILING CHART

Stock Report: Hologic (HOLX) - HE II HOLX chart 3 30 13


INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT

Takeaway: The momentum in housing and equities is rippling through to the labor market, as NSA jobless claims show significant improvement.

Labor Market Strengthens Further

This past week's NSA (Non-seasonally adjusted) initial jobless claims were better YoY by 9.5%, which is from the 8.0% YoY improvement in the previous week. This print reflects data through March 2, so next week should be the first week that sheds light on whether the sequester is actually having an impact. On a rolling basis (4-wk moving average), NSA claims were better YoY by 4.3%, which was improved from 2.6% in the previous week. These two measures, the YoY change in NSA and rolling NSA claims, are the better indicators of what's really happening in the labor market, and they both indicate the labor market is strengthening.

 

On the SA (seasonally-adjusted) front, the numbers look great. This is what the market is paying attention to. As a reminder, last week was the final week of tailwind for the series and we'll now be gradually shifting from tailwind to headwind over the coming six months. The first chart in the note tells the story well. 

 

The Data

Prior to revision, initial jobless claims fell 4k to 340k from 344k WoW, as the prior week's number was revised up by 3k to 347k. The headline (unrevised) number shows claims were lower by 7k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -7k WoW to 348.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -4.3% lower YoY, which is a sequential improvement versus the previous week's YoY change of -2.6%

 

INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 1

 

INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 2

 

INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 3

 

INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 4

 

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INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 7

 

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INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 9

 

INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 10

 

INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 11

 

INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 12

 

INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 13

 

INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 14

 

Yield Spreads Remain a Tailwind

The 2-10 spread rose 3.6 basis points WoW to 169 bps. 1Q13TD, the 2-10 spread is averaging 166 bps, which is higher by 24 bps relative to 4Q12.

 

INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 15

 

INITIAL CLAIMS - THE REAL LABOR MARKET SHOWS ACCELERATING IMPROVEMENT - 16

 

 

Joshua Steiner, CFA


Headwinds For Initial Jobless Claims?

Takeaway: The initial jobless claims number will soon face headwinds but that doesn’t mean the labor market is weakening.

Today’s initial jobless claims number of 340,000 beat expectations, and the rolling four-week number hit their best level in five years. That said, this is a seasonally adjusted number, which could face some headwinds in coming months.

 

A number that tells a truer story of the overall picture of the labor market is the non-seasonally adjusted number. In the chart below, take a look at the purple line, which shows rolling claims from September through February.  You’ll see that the non-seasonally adjusted claims number is declining at an accelerating rate. It’s also reaching levels much lower than claims have hit in the past few years.

 

Headwinds For Initial Jobless Claims? - JOBSCLAIMS


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Two Way Street

Client Talking Points

The High Road

First off, let us review what's currently going on. The Dow Jones Industrial Average touched another new high yesterday and stocks are in bullish formation. This is in line with our global growth thesis that revolves around economic recovery in the housing and labor markets and increased consumption. We have a strong US dollar driving down commodity prices and in particular, crude oil, which is now at $90 a barrel (WTI). That's bullish for consumption which is ultimately bullish for stocks. Things are all good for the bulls in stockland. 

The Low Road

Conversely, we are bearish on commodities and mining is a sector highly correlated to commodity prices. On March 27th, Industrials Sector Head Jay Van Sciver will hold a Black Book call to discuss his view on the sector and some names that are sure to attract your attention (CAT - anyone?). Why focus on mining? Because they've spent a ton of capital over the last decade and mining is not a growth industry contrary to what others might think.

Asset Allocation

CASH 24% US EQUITIES 24%
INTL EQUITIES 24% COMMODITIES 4%
FIXED INCOME 0% INTL CURRENCIES 24%

Top Long Ideas

Company Ticker Sector Duration
ASCA

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.

FDX

With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road

TWEET OF THE DAY

"@KeithMcCullough @HedgeyeEntertaining and informative. Great stuff." -@JoshWellerWorld

QUOTE OF THE DAY

"We don't see things as they are, we see things as we are." -Anais Nin

STAT OF THE DAY

U.S. Jobless Claims fall to 340,000. One month average hits five-year low.


WHAT TO EXPECT IN MACAU IN MARCH?

Anything less than double digit growth would be a disappointment

 

 

Based on the last 3 months of actual growth and factoring in seasonality, we’re projecting 10-15% YoY growth for March.  Excluding the impact of low hold, investors should be disappointed with growth less than double digits.

 

Why should we be disappointed with even high single digit growth?  For one, the hold comp is very easy.  March 2012 VIP hold was the lowest of 2012.  Moreover, March VIP volumes and Mass revenues have historically averaged 6% and 5% sequential growth over February in years when Chinese New Year occurred in February.  A simple calculation using these sequential growth rates yields 15% YoY growth for March, at the high end of our projection.

 

Even with flat MoM revenues, March would still exceed last year by 8%.  Our projection methodology is more comprehensive than these simple sequential analyses but we find them useful as a reasonableness check.  Any way we look at it, March YoY growth should be strong and an acceleration from January and February.  A non-hold related miss from our projection could be indicative of a slowdown in the underlying fundamental trends or the impact from the China corruption crackdown.

 

WHAT TO EXPECT IN MACAU IN MARCH? - m123



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