LabCorp Research Report Updated - Analyst Blog

On May 21, 2014, we issued an updated research report on Laboratory Corporation of America Holdings LH, a leading independent clinical laboratory company. LabCorp reported a disappointing first-quarter 2014 with both adjusted EPS and revenues missing the corresponding Zacks Consensus Estimate. However, the company is working on portfolio expansion and is focusing more on the high-margin esoteric testing businessto drive its top line.

LabCorp reported first-quarter adjusted EPS of $1.51, down 13.2% year over year. The figure also missed the Zacks Consensus Estimate by 9 cents. Revenues edged down 1% to $1,430.7 million also missing the Zacks Consensus Estimate. Severe weather impacted the quarter's revenues by more than $40 million.

The current economic uncertainty continues to adversely affect LabCorp. The challenging volume environment for testing laboratories and utilization weaknesses also pose as looming headwinds. Moreover, we are concerned about the Medicare payment reductions (effective Jan 2013), the recent-introduced molecular pathology codes and implementation of sequestration. Although the share repurchase activity provided some cushion for the company, the bottom line failed to boost confidence. Further, margins continue to remain under pressure. The poor outlook for 2014 also implies no near-term improvement.

Despite the near-term challenges from reimbursement issues, the company is working on portfolio expansion to improve 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.

In this regard, the recently announced availability of ImmunoCAP allergy testing products from Thermo Fisher Scientific, Inc. TMO is worth mentioning. LabCorp currently offers an extensive test menu that helps to determine whether a patient's system supports or rejects an allergy diagnosis, thereby suggesting other etiologies. With allergies affecting approximately 60 million individuals in the U.S. annually, the availability of Thermo Fisher's test is expected to add value to LabCorp's product line. LabCorp currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Other top-ranked medical instruments stocks that are worth a look include The Cooper Companies Inc. COO and Steris Corp. STE. Both the stocks carry a Zacks Rank #2 (Buy).