I doubt there is a person on this planet who doesn't want to see the COVID-19 pandemic disappear forever. But for businesses in the healthcare industry, the circumstances can end up generating additional revenue. That's not to say those companies don't want it to go away as everyone else does, but when revenue is on the line, it can be a bit tricky to keep investors happy.

Since its latest earnings call, Hologic (HOLX -0.62%) has been looking for ways to keep its investors smiling. The pandemic seems to have a toe out the door in some countries, resulting in a $60 million -- or 10% -- quarterly decline in revenue related to COVID-19. Do the latest results from Hologic foretell its doom?

Test tube labeled COVID-19

Image source: Getty Images.

An earnings surprise

Entering the first quarter of 2021, Hologic was riding a winning streak of three consecutive quarters. During that time span, earnings had exceeded analyst estimates for earnings per share (EPS) by an average of 70.5%:

Fiscal Quarter Ending Consensus EPS Forecast Earnings per Share Earnings Beat
June 2020 $0.36 $0.75 108.33%
Sept. 2020 $1.22 $2.07 69.67%
Dec. 2020 $2.14 $2.86 33.64%
March 2021 $2.62 $2.59 (1.15%)

Data source: Nasdaq

However, looking more closely, we can see the beats have been sliding down consistently quarter by quarter. If the trend continues as is, we might see a 33% miss in the next quarter. But the more likely scenario is that analysts are getting better at estimating earnings for Hologic, after a 2020 so out of whack that nothing was truly predictable.

A steep and steady decline in the gap between estimated earnings and real earnings is not necessarily a bad thing. Sure, everyone loves to see an earnings surprise to the upside, and it can have a positive impact on a stock price immediately -- but in some cases, it could just mean that analysts are having trouble reading a company.

Inside the surprise

For Hologic, the recent earnings surprise to the downside was mostly the result of the healthcare industry getting a better grasp on the pandemic, resulting in instrument sales seeing a decline. But hidden in that number, Hologic experienced strong revenue gains in many segments. And it did this while completing three acquisitions during the quarter (Diagenode, Biotheranostics, and Somatex) -- primarily in molecular diagnostics -- and announcing an agreement to acquire a fourth, Mobidiag.

Total revenue increased 103.4% from the prioer-year quarter; this was led by a huge influx of revenue from worldwide molecular diagnostics, amounting to $935 million, an increase of 390%. A major contribution to those numbers came from sales of Panther scalable solutions, which shipped a tsunami of orders this past year, going from a pre-pandemic average of 225 per year to over 717. As if that jump isn't enough to get excited about, the company expects to exceed that number in fiscal 2021. With a plethora of Panther systems in place to set the stage, the company is well positioned to gain market share.

An M&A springboard

Hologic now has the opportunity to benefit from mergers and acquisitions (M&A) made during the pandemic and use them as a springboard toward capturing market share. Rather than look at the end of the pandemic as an end to revenue, investors could note that the explosion in revenue during 2020 now enables the company to penetrate new markets.

The acquisition of Mobidiag -- an innovator in near-patient, acute-care diagnostics -- is one to watch closely. The near $800 million purchase provides Hologic with the ability to compete in a large and rapidly growing area it doesn't compete in today. But this acquisition will not be without its own challenges. In 2020, Mobidiag generated $40 million in revenue with only a limited commercial presence and no U.S. sales. But to make good on the purchase price, it will need approvals and time before it can provide net positive results.

Looking past the pandemic

In 2021, Hologic will celebrate a milestone, as it expects to reach its 100 millionth SARS-CoV-2 test shipped. Along the way, the company has sold tests in 40 countries across the globe, enabling it to build on relationships with business partners, customers, and prospects, while increasing its installed base.

With a full year's worth of pandemic-era sales on the books, the next test begins for the company. Though coronavirus test volumes remain high, a strengthening vaccine rollout has led to a decline in testing since January. Hologic believes that that decline will continue, though testing will also continue to play an important role as countries and businesses go through reopening phases. In turn, the company expects sales of COVID-19-related items in diagnostics to be down $40 million sequentially.

For now, an end to the pandemic does not foretell the end of revenue, or doom, for Hologic. But with sales related to COVID-19 expected to decline, and expenses related to acquisitions increasing, the stock is a "hold and see" for me. If all Hologic did was sell items related to COVID-19, I'd be more nervous, but the molecular diagnostics market is expected to grow at a compound annual growth rate of 3.9% through 2028, and Hologic has done enough to take part in that growth. That's enough for investors who own shares to keep holding. But for those who don't own any, it might be a good idea to see how the next quarter plays out before taking any action.