Hologic's Margin Stability Amid Tariffs: What's Behind the Confidence?

Hologic HOLX, a women’s health-focused company, delivered a non-GAAP gross margin of 61.1% in the second quarter of fiscal 2025, up 40 basis points (bps) from the year-ago period. This was fueled by strong diagnostic sales and contributions from two recent high-margin additions — Endomagnetics and Gynesonics. While these acquisitions raised operating expenses by 1.7%, excluding them, costs were down 4.6% year over year, reflecting disciplined cost management despite a 0.5% dip in revenues at constant currency. Despite these integrations, Hologic posted a 30% operating margin in the quarter, which remains among the strongest in its peer group and also increased 60 bps sequentially.

Amid ongoing macroeconomic volatility, Hologic has taken a cautious stance on its full-year outlook. Tariffs tied to its manufacturing operations in China and Costa Rica are expected to add $20 million-$25 million to the quarterly cost of goods sold. The company also lowered its China revenue forecast by roughly $20 million to just $50 million, reducing exposure to future geopolitical risks. Following the end of USAID funding, Hologic removed its $50 million HIV testing business from Molecular Diagnostics projections. Still, the Diagnostics segment is expected to lead the overall growth for the year, rising in the mid-single digits.

Surgical is expected to grow in the high-single digits, supported by Gynesonics, International sales momentum and the strong uptake of the new Fluent Pro Fluid Management System. Further, an accelerated recovery in Skeletal product supply is also expected to boost performance. Together, these factors support Hologic’s ability to deliver gross margins in the low 60s for the full year, even as the P&L impact of the tariffs intensifies. The operating margin is also forecasted to remain healthy in the low 30s.

Scenario for Hologic’s Peers

GE Healthcare GEHC posted an 80 bps year-over-year adjusted gross margin improvement in the first quarter of 2025 due to volume growth and new, higher-margin products. GEHC’s adjusted EBIT margin of 15% improved 30 bps, led by ongoing productivity initiatives. For the full year, GE Healthcare now expects 14.2%-14.4% in the adjusted EBIT margin for the full year, with approximately $475 million of additional tariff-related costs since its February guidance.

Bio-Rad BIO, operating in the molecular diagnostics space, delivered a non-GAAP gross margin of 53.8%, down 0.7% year over year. Meanwhile, BIO’s non-GAAP operating margin increased 11.3% year over year to 10.8%, which also topped the consensus. Bio-Rad expects a net tariff headwind of 130 bps to its operating margin for 2025, mainly from shipping U.S.-manufactured products to China.

HOLX’s Price Performance, Valuation and Estimates

In the past six months, Hologic shares have dropped 10.4% compared with the industry’s decline of 13.8%.

From a valuation standpoint, HOLX trades at a forward 12-month price-to-sales (P/S) of 3.42X, well above the sector. It carries a Value Score of B.

The Zacks Consensus Estimate for Hologic’s fiscal 2025 earnings implies a 2.9% improvement year over year.

HOLX stock currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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