Investors pursuing a solid, dependable stock investment can often be led to Hologic, Inc. (NASDAQ:HOLX), a large-cap worth US$12b. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. But, the health of the financials determines whether the company continues to succeed. Today we will look at Hologic’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into HOLX here.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Does HOLX Produce Much Cash Relative To Its Debt?
Over the past year, HOLX has reduced its debt from US$3.4b to US$3.1b – this includes long-term debt. With this reduction in debt, HOLX currently has US$403m remaining in cash and short-term investments , ready to be used for running the business. Additionally, HOLX has produced US$705m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 22%, meaning that HOLX’s debt is appropriately covered by operating cash.
Can HOLX pay its short-term liabilities?
At the current liabilities level of US$1.0b, the company has been able to meet these obligations given the level of current assets of US$1.5b, with a current ratio of 1.45x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Medical Equipment companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does HOLX face the risk of succumbing to its debt-load?
Hologic is a highly levered company given that total debt exceeds equity. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies. However, since HOLX is presently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
HOLX’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure HOLX has company-specific issues impacting its capital structure decisions. I suggest you continue to research Hologic to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HOLX’s future growth? Take a look at our free research report of analyst consensus for HOLX’s outlook.
- Valuation: What is HOLX worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether HOLX is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.