Will LabCorp (LH) Miss Earnings Estimates? - Analyst Blog

Laboratory Corp. of America Holdings LH, popularly known as LabCorp, is expected to release its first-quarter 2014 results before the opening bell on Apr 25. Last quarter, LabCorp posted a negative earnings surprise of 3.59% while the four-quarter trailing average miss is pegged at 0.90%. Let's see how things are shaping up for this announcement.

Factors at Play

The current economic uncertainty continues to adversely affect LabCorp. The challenging volume environment for testing laboratories and utilization weaknesses stand as looming headwinds. Moreover, we are concerned about the Medicare payment reductions (effective Jan 2013), recently-introduced molecular pathology codes and the implementation of sequestration.

Although the share repurchase activity provided some cushion for the company, the bottom-line results in the last reported quarter failed to boost confidence. Margins also continue to remain under pressure. Moreover, the poor outlook for 2014 implies that the industry trend does not seem likely to improve in the near future.

Nonetheless, LabCorp is leaving no stone unturned to consolidate operations and realize potential synergies. Despite the near-term challenges from reimbursement issues, the company is working on portfolio expansion to drive its top line. The company is focusing more on the high-margin esoteric testing business, which is expected to contribute 45% of total sales in the next 3–5 years.

Further, the company's recent announcement of major upper management churns including appointment of a new Chief Financial Officer and changes to the board of directors instills confidence. This new management is expected to come up with several new ideas to enhance the company's position amid several market challenges.

Earnings Whispers?

Our proven model does not conclusively show that LabCorp is likely to beat earnings this quarter. It is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: LabCorp's Earnings ESP is -0.63%, since the Most Accurate estimate of $1.59 stands below the Zacks Consensus Estimate of $1.60.

Zacks Rank: LabCorp's Zacks Rank #3 (Hold) when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Align Technology Inc. ALGN has an earnings ESP of +13.89% and holds a Zacks Rank #1 (Strong Buy). Align is expected to report first-quarter 2014 earnings on Apr 23.

Myriad Genetics Inc. MYGN has an earnings ESP of +10.87% and holds a Zacks Rank #1 (Strong Buy). Myriad Genetics will be reporting first-quarter earnings on May 6.

Cardinal Health, Inc. CAH has an earnings ESP of +1.00% and holds a Zacks Rank #2 (Buy). Cardinal Health will report third-quarter fiscal 2014 earnings on May 1.