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JP Morgan Initiates Coverage of Hologic With Neutral Rating

NEW YORK – JP Morgan said Thursday that it has initiated coverage of Hologic with a Neutral rating.

In a note to investors, analyst Rishi Parekh wrote that Hologic has strong credit statistics and ratings, and investors are waiting for a return to growth and margin improvements. He said that Hologic's management has indicated that the firm has international growth opportunities, yet those international operations are less profitable than domestic ones.

Though the firm has initiated a $500 million share repurchase program, Parekh said that a larger focus on accretive M&A and investments into organic growth would be preferable to buybacks.

Parekh noted, however, that while Hologic's diagnostics business benefited from COVID-19 testing, the segment has seen low-single-digit declines, excluding COVID-19 assays, and a margin deterioration to 11 percent in Q4 2023 compared to 27 percent one year earlier. The diagnostics business is mostly comprised of molecular testing for infectious diseases and includes cytology, perinatal tests, and blood screening. The segment contributed about 44 percent of the firm's first quarter 2024 revenues compared to 37 percent for its breast health business, 16 percent for GYN surgical, and 3 percent for skeletal health.

Hologic announced earlier this year it had secured US Food and Drug Administration clearance for its Genius Digital Diagnostics System that is used in digital cytology to aid the identification of precancerous lesions and cervical cancer cells. The firm also reported in May that its fiscal second quarter revenues were up 5 percent year over year, excluding COVID-19 sales. The firm's molecular diagnostics revenues were up 6 percent overall and 11 percent excluding COVID-19 revenues.

Shares of Hologic were up about 1 percent at $76.50 Thursday morning on the Nasdaq.