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Takeaway: We are removing Hologic Inc (HOLX) from our Investing Ideas list today.

We are removing Hologic Inc (HOLX) from our Investing Ideas list today.  


Hedgeye Healthcare Sector Head Tom Tobin says, "We overstayed our welcome on HOLX, but with the toolkit we have, we're likely to be back, just at a lower price from here."

Some Good Trends, But Mostly Just Confusing

  • We anticipated a tailwind from patient volumes in the quarter, share gains, and a stable headwind from interval testing sequentially from fiscal Q313. Share gains are clearly coming at a higher cost (lower pricing) than we anticipated.  Additionally, we have thought HPV testing would increase under the Cervical Cancer Screening Guidelines, which is either not happening, or being offset by price concessions to lab providers like DGX.  
  • In Breast Health, the positive commentary on 3D matches our analysis of new facilities with the technology, but again, pricing pressure in the legacy business is offsetting all of the gains. 
  • With problems in the base business worse than we expected, the opportunity from the ACA has become more important, and given problems with the roll-out, not a bet we're willing to take here.

Guidance & Valuation Interesting Lower

Walking through the FY14 guidance and accounting for share repurchases and de-leveraging, and a share price above $19 looks expensive at above 9X EV/EBITDA.  The new CEO may indeed be setting a reasonable and low bar to beat over the coming quarters, but we'd prefer not to stick around to find out.