Stephens initiated coverage on Hologic Inc (NASDAQ:HOLX), citing it as a major player in women's health, known for its consistent revenue growth, strong free cash flow, and attractive profit margins, is well-positioned in the molecular diagnostics sector post-COVID.

Stephens analyst writes, "Hologic is a leader in women's health with a portfolio of products that have become the gold standard for care. Hologic emerged from the pandemic with new growth drivers, a scaled installed base, and a stronger balance sheet."

The analyst says Hologic is well-positioned to execute on near-term targets and fuel long-term growth. A change to cervical cancer screening guidelines can potentially cause near-term share volatility.

However, the impact from the change will be manageable, won't impact near-term numbers, and will ultimately be immaterial to Hologic's long-term growth profile.

Stephens initiates with an Overweight rating and a price target of $87.

In the near term, 5%- 7% growth seems achievable. However, longer-term growth will be dependent on M&A. With its leverage ratio at a 10-year low, the Stephens analyst expects Hologic to deploy capital and thinks M&A represents a key opportunity to bolster both near-term and long-term growth and drive multiple expansions.

Stephens writes that mergers and acquisitions are crucial for Hologic's long-term growth, and this strategy is expected to drive its stock performance over the next year.

Management has prioritized M&A for capital allocation. While the company will likely continue with smaller tuck-in deals, it is also prepared to pursue larger acquisitions (over $1 billion) if the right opportunity arises. This focus on M&A presents a significant opportunity for multiple expansion.

Price Action: HOLX shares are up 2.05% at $73.76 at the last check on Thursday.