CPTS Conceptus, Inc. (MM)

Recently, we reiterated our Neutral recommendation on Hologic (HOLX) with a target price of $18.00.

The company develops, manufactures and supplies diagnostics, medical imaging systems and surgical products catering to the healthcare needs of women. Hologic’s biggest segment, Breast Health, recorded robust 10.9% year-over-year growth to reach $219.1 million during the most recent quarter. This segment is now banking on the growth potential of 3D Dimensions.

Sales of digital mammography products were $83.3 million in the last reported quarter (up 18% on a sequential basis and 8% year over year), representing 38% of total revenue from the Breast Health segment. The upside was driven by significant increases in both units and revenues of the Dimensions product line, which accounted for 63% of digital mammography product revenue and 49% of units (57% of revenues and 43% of units in the third quarter of the fiscal and 37% of revenues and 32% of units in the corresponding quarter in 2010).

Though sales of 3D Dimensions, still in its initial stages of launch, are ramping sequentially, significant contribution is not expected before 2012.  Nevertheless, the company is confident in its ability to achieve the target of placing 500-700 3D systems in the US within the first two years. Going forward, the Dimensions portfolio is expected to be an important growth driver for the Breast Health segment.

We are also impressed by the company’s focus on international operations, reflected in steady revenue growth. Hologic recorded a quarter of its revenues during the last reported quarter from international operations.

Hologic has been building its international infrastructure and fortifying management resources, particularly in the emerging markets of China, Latin America, Middle East and Eastern Europe. As a caveat, the company derives 50% of its international business from Europe, where many countries are struggling financially, which could impact the growth rate to some extent. However, having witnessed strong potential in China, Hologic has acquired TCT (a distributor of medical products including Hologic’s ThinPrep pap tests and others) and Healthcome Technology (manufacturer of mammography systems), both based in China.

However, the current economic uncertainty continues to affect procedure volume which had a negative impact on sales of both NovaSure and Adiana. Hologic’s competitor in the GYN Surgical space, Conceptus (CPTS), has also been witnessing a similar adverse impact on Essure procedures. 

Overall, we maintain a long-term Neutral stance, which is in line with the short-term Zacks #3 Rank (Hold).

 
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