HOLX: Adding Hologic to Investing Ideas (Short Side)

05/27/16 11:35AM EDT

Editor's Note: Please note that Healthcare analyst Tom Tobin will send out a full report outlining our high-conviction short thesis next week. In the meantime, below is a brief summary of our thesis sent today by Hedgeye CEO Keith McCullough in Real-Time Alerts.

HOLX: Adding Hologic to Investing Ideas (Short Side) - hologic

Healthcare stocks have been some of the worst performers in the US stock market in 2016. This should surprise no one who shares our #LateCycle view. Some sub-sectors of the Healthcare economy are as late cycle as late cycle gets.

A Healthcare stock we used to like (when the cycle was a tailwind) is Hologic (HOLX). Now, with #TheCycle as a headwind, Tom Tobin likes it on the short side. In his latest Institutional Subscriber note he pointed out the following:

"We have made no change in s-curve which forecasts declines in late 2016 and into 2017.  We listened to the BofA presentation by CEO Steve MacMillan yesterday.  We were interested to hear more commentary regarding deceleration in 2017,  which sounded incremental and consistent with our view. Additionally, while we expect gross margins to turn lower as a result of declines in 3D product revenue, we were interested in MacMillan's comment that there remains opportunity to drive gross margins higher from here, which we don't expect to happen given lower mix of 3D system sales. One point of disagreement may also be a misunderstanding the use of the word "peak" when speaking about 3D adoption. We would definitely disagree that the peak will occur in 2017 as MacMillan stated yesterday. Our data and view suggests we will see the peak in June 2016."

Buying at cycle peaks can be disastrous,

KM

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