Hologic (HOLX)

Medical technology company Hologic (NASDAQ:HOLX) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 6.2% year on year to $1.05 billion. Its non-GAAP profit of $1.13 per share was 2.7% above analysts’ consensus estimates.

Company Overview

As a pioneer in 3D mammography technology that has revolutionized breast cancer detection, Hologic (NASDAQ:HOLX) develops and manufactures diagnostic products, medical imaging systems, and surgical devices focused primarily on women's health and wellness.

The medical devices and supplies industry, particularly those specializing in imaging and diagnostics, operates with a comparatively stable yet capital-intensive business model. Companies in this space benefit from consistent demand driven by the essential nature of diagnostic tools in patient care, as well as recurring revenue streams from consumables, service contracts, and equipment maintenance. However, the industry faces challenges such as significant upfront development costs, stringent regulatory requirements, and pricing pressures from hospitals and healthcare systems, which are increasingly focused on cost containment. Looking ahead, the industry should enjoy tailwinds from advancements in technology, including the integration of artificial intelligence to enhance diagnostic accuracy and workflow efficiency, as well as rising demand for imaging solutions driven by aging populations. On the other hand, headwinds could arise from a rethinking of healthcare costs potentially resulting in reimbursement cuts and slower capital equipment purchasing. Additionally, cybersecurity concerns surrounding connected medical devices could introduce new risks and complexities for manufacturers.

Hologic's competitors vary by segment. In Diagnostics, the company primarily competes with Roche Diagnostics and Becton Dickinson. In Breast Health, major competitors include Siemens Healthineers and GE Healthcare. The GYN Surgical segment faces competition from Johnson & Johnson and Medtronic, while numerous smaller companies compete in specific niches across all segments.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $4.1 billion in revenue over the past 12 months, Hologic has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Hologic grew its sales at a tepid 1.7% compounded annual growth rate. This fell short of our benchmarks and is a tough starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Hologic’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

Hologic also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales were flat. Because this number aligns with its normal revenue growth, we can see that Hologic has properly hedged its foreign currency exposure.

This quarter, Hologic reported year-on-year revenue growth of 6.2%, and its $1.05 billion of revenue exceeded Wall Street’s estimates by 1.5%.

Looking ahead, sell-side analysts expect revenue to grow 4% over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below the sector average.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Hologic has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average operating margin of 28.2%.

Looking at the trend in its profitability, Hologic’s operating margin decreased by 26.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Hologic generated an operating margin profit margin of 22.6%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Hologic’s unimpressive 1.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q3, Hologic reported adjusted EPS of $1.13, up from $1.01 in the same quarter last year. This print beat analysts’ estimates by 2.7%. Over the next 12 months, Wall Street expects Hologic’s full-year EPS of $4.27 to grow 5.3%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Hologic has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the healthcare sector, averaging an eye-popping 31.9% over the last five years.

Taking a step back, we can see that Hologic’s margin dropped by 16.6 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Hologic’s free cash flow clocked in at $341.4 million in Q3, equivalent to a 32.5% margin. The company’s cash profitability regressed as it was 1.6 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Hologic hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 17.2%, impressive for a healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Hologic’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Hologic reported $2.20 billion of cash and $2.51 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.34 billion of EBITDA over the last 12 months, we view Hologic’s 0.2× net-debt-to-EBITDA ratio as safe. We also see its $23.4 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Hologic narrowly top analysts’ constant currency revenue expectations this quarter. We were also happy its revenue and EPS both outperformed Wall Street’s estimates. Overall, this print had some key positives. The stock remained flat at $73.98 immediately after reporting.

Updated: December 3, 2025 at 11:18 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Hologic, you should also grasp the company’s longer-term business quality and valuation.

Hologic isn’t a terrible business, but it doesn’t pass our quality test. For starters, its revenue growth was uninspiring over the last five years. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining adjusted operating margin shows the business has become less efficient.

Hologic’s P/E ratio based on the next 12 months is 16.4x. Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $76.50 on the company (compared to the current share price of $74.93).