ABAX Abaxis, Inc. (delisted)

Recently, Hologic Inc. (HOLX) completed the divestment of its LIFECODES business unit to Immucor Inc., a prominent player in the automated instrument–reagent systems space in the blood transfusion industry.

Earlier, on Jan 3, Hologic had announced its definitive agreement to sell its LIFECODES business in order to focus on its core business activities. As expected, Hologic successfully completed the divestiture in the second quarter of fiscal 2013.

Per the agreement, Hologic received cash payment of $85 million (adjusted for working capital items). The company might also receive a contingent payment of $10 million from Immucor depending on the fulfillment of certain financial goals for the ongoing year.

LIFECODES became a part of Hologic’s broad based business after the Gen-Probe acquisition in Aug 2012. The business unit comprises the transplant diagnostic division under the company’s mainstay Diagnostic segment.

The divestment of LIFECODES will enable Hologic to sharpen its focus on other operating platforms under its Diagnostic segment, which are more in tune with its current growth strategy. The sale will allow it to direct resources towards core operations in order to leverage top-line.

In fiscal 2012, Hologic’s long-term debt (net of current portion) increased more than two fold to almost $5 billion. With a debt-to-capital ratio of approximately 63% in fiscal 2012, the balance sheet appears to be highly leveraged.

Although the divestment will garner incremental funds for the company and reduce its debt, we are wary about Hologic’s ability to improve its debt position immediately on the heels of the LIFECODES divestment.

Offering a wide range of products, Hologic is an industry leader in the field of women’s health. While the company continues to deliver robust top-line growth, its bottom-line remains under continuous pressure due to higher interest expense from a huge debt burden due to the Gen-Probe acquisition and pipeline development.  

The stock carries a Zacks Rank #3 (Hold). Although we remain on the sidelines for Hologic, we believe that other medical stocks such as Abaxis (ABAX), Conceptus (CPTS) and Cyberonics (CYBX) are likely to do well. These stocks carry a Zacks Rank #2 (Buy) each. 

 
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HOLOGIC INC (HOLX): Free Stock Analysis Report
 
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