Hologic's (NASDAQ:HOLX) Decelerating Rates of Return: What Investors Need to Know

Hologic, Inc. (NASDAQ:HOLX), a leading provider of diagnostics, breast health, and surgical products, has seen a deceleration in its return on capital employed (ROCE) and return on equity (ROE) in recent years. While the company has maintained a stable ROCE of around 12% for the last five years, this rate is not increasing significantly. Additionally, Hologic's capital employed has grown by 51% over the last five years, but this growth rate is not exceptional. These factors, combined with the company's lower than expected stock performance, have contributed to the deceleration of Hologic's ROCE and ROE.



Hologic's capital expenditure (CapEx) and reinvestment strategies have played a significant role in its ROCE and ROE trends. The company has consistently reinvested capital at decent rates of return, which has helped maintain stable returns over the long run. However, Hologic's CapEx as a percentage of revenue has been relatively low, averaging around 5% over the past five years. This indicates that the company is not overinvesting in capital expenditure, which could lead to poor returns. Instead, Hologic is focusing on reinvesting capital at rates that generate good returns for shareholders.

Acquisitions and divestments have also played a crucial role in Hologic's ROCE and ROE trends, as well as its overall growth strategy. The company has made strategic acquisitions to expand its product portfolio and enter new markets, while also divesting underperforming or non-core businesses to focus on its core competencies. For instance, Hologic acquired Endomagnetics Ltd in July 2024 for approximately $310 million to expand and diversify its interventional breast business. Similarly, in October 2024, Hologic announced its agreement to acquire Gynesonics, Inc. for approximately $350 million to broaden its surgical portfolio and enter the minimally invasive solutions market for women's health. These acquisitions have contributed to Hologic's ROCE and ROE trends by providing access to new revenue streams and enhancing the company's overall profitability.

However, Hologic has also divested certain businesses to focus on its core competencies and improve its overall performance. In 2023, the company divested its Blood Screening and SSI ultrasound imaging businesses, which allowed it to allocate resources more effectively to its core diagnostic, breast health, and surgical divisions. These divestments have helped Hologic maintain its focus on its core businesses and improve its overall efficiency.

In conclusion, Hologic's decelerating rates of return can be attributed to a combination of factors, including stable returns, moderate growth in capital employed, lower than expected stock performance, and market conditions. The company's capital expenditure and reinvestment strategies, as well as its acquisitions and divestments, have significantly influenced its ROCE and ROE trends. While Hologic has maintained stable returns and reinvested capital at decent rates, its lower than expected stock performance and the impact of market conditions may be contributing to the deceleration in its returns. Investors should closely monitor Hologic's financial performance and strategic initiatives to assess the company's long-term growth prospects.