Investor Carl Icahn has an eye for a good buy. With a remarkable ability to bring out unrecognized value in his share purchases, he has amassed a fortune. And now it appears he believes medical device maker Hologic (HOLX 0.58%) may possess some hidden worth. The company is in need of a turnaround, however. It's reported a profit in only one out of the last six years. Improvements are mandatory if the firm wishes to emulate the earnings performance delivered by peers Abbott Laboratories (ABT 1.96%) and Becton, Dickinson and Company (BDX -0.43%). Can you benefit from joining Icahn in his quest to advance Hologic's business and share price?

An activist at work
Hologic is a developer and manufacturer of health care diagnostic testing products, medical imaging systems, and surgical products. Its main business deals with laboratory testing-related products that are used in the diagnosis of infectious human diseases, blood screening, and DNA analysis.

Sluggish demand and a costly acquisition have hurt Hologic's recent results. Adjusted revenue dropped 5% in the latest quarter, compared to the prior year. In the company's critical lab diagnostics business, sales fell 6.6%. Expectations for the full year are around $2.43 billion to $2.48 billion in sales, a year-over-year decrease of 1% to 3%. After disclosing a 12.5% stake in November, Icahn said he would talk to management about ways to realize the value. Apparently, he was very persuasive. The company recently announced a new CEO and two Icahn associates to the board of directors.

How can shareholder value be realized?
A two-pronged approach could be the most effective way to unlock Hologic's full shareholder value. First, elevating profitability by prudently cutting expenses should be a priority. The company started a cost cutting initiative last year and it looks to be taking hold. Selling and marketing expenses decreased 12% year-over-year in the latest quarter.     

Besides improving profitability, some sort of financial engineering will probably also be undertaken. An expensive 2012 takeover has yet to deliver expected benefits but has more than tripled the company's borrowings. To lighten this debt burden, certain divestitures might be an attractive option. Hologic's four different business segments, each with multiple product lines, may hold plenty of appealing assets that could be of interest to buyers.

What could Hologic be worth?
What price could the company's shares fetch as it turns itself around? Some competitor comparisons may provide the answer.

One rival is Abbott Laboratories. Abbott, a well-established diversified health care company, sells a broad line of generic drugs, vascular surgical products, and nutritional goods. It also has a diagnostic product business somewhat similar to Hologic's. Though it's the company's smallest division, generating 21% of sales, it has been a driver of Abbott's admirable results.

The company posted double-digit earnings-per-share growth in both its latest quarter and full year. Further, double-digit gains in earnings are expected for 2014. Sales in the quarter rose a solid 3.3%, helped by operational diagnostic sales jumping 8.8%.

Abbott, with its diversified portfolio of strong businesses, appears reasonably valued at around 2.5-times expected revenue. A slightly more optimistic valuation is found on an operating cash flow basis, where a 15 multiple may be justified given the company's lucrative nutritional products franchise.

Another competitor
Becton, Dickinson is another Hologic competitor. Though it mainly markets medical products such as syringes and anesthesia-related supplies, the company also has a sizable diagnostic products unit. These operations generate about 33% of total company revenue by selling infectious disease detecting products, and systems for blood collection.

In its latest fiscal year, Becton, Dickinson put up commendable numbers. Adjusted net income increased 4.9%, compared to the prior year, and sales were higher by 4.5%. Its diagnostics business grew 4.3%, driven by solid growth in emerging markets. In the first quarter of its new fiscal year, quarterly revenue increased an impressive 6%. In diagnostics, successful international expansion advanced sales 4.2%.

Becton, Dickinson also appears to be fairly priced at around 2.5-times revenue. On an operating cash flow basis, the company's multiple of 12 certainly doesn't appear overly enthusiastic.

Based on these peer comparison's, an improved Hologic's fair value might be near 2.5-times sales or 11-times operating cash flow (equal to Becton, Dickinson's reasonable sales multiple and at a token discount to Becton's modest flow figure.)  With current expectations of around $2.4 billion in sales, $22 a share may be a credible fair value estimate. On an operating cash flow basis, assuming $600 million can be delivered versus the roughly $630 million produced last fiscal year, it looks like there could be some upside to this stock if the multiple expands.

Noted investor Carl Icahn has an eye for value. He apparently believes there is price upside in Hologic stock and comparisons with rivals like Abbott Laboratories and Becton, Dickinson seem to support that view. Since Hologic's shares have already climbed on news about Icahn's interest, you might want to consider following his lead on any noticeable pullback.