Laboratory Corporation of America Holdings
) is scheduled to release its third quarter 2012 earnings on
Thursday, October 18, 2012, before the market opens. The company is
expected to report earnings of $1.74 per share on revenue of $1.44
billion for the quarter, according to the Zacks Consensus
LabCorp reported earnings of $1.56 per share in the second
quarter of fiscal 2012 compared with $1.20 in the year-ago quarter.
Restructuring charges aside, the company recorded expenses related
to acquisitions and losses on the disposal of one of its European
subsidiaries and one of its joint ventures. Adjusted
earnings came in at $1.77 (excluding amortization, restructuring
and other special charges), a penny behind the Zacks Consensus
Estimate. Earnings, however, surpassed the previous year's level of
Revenues increased 1.4% year over year to $1,423.4 million,
marginally missing the Zacks Consensus Estimate of $1,440 million.
The low-volume-growth environment is reflected in flat testing
volume (measured by requisitions) while revenue per requisition
LabCorp narrowed its guidance for fiscal 2012. The company
expects 2−3% revenue growth (previous guidance of 2−3.5%) resulting
in adjusted earnings of $6.80−$7.00 ($6.75−$7.05) per share in the
Agreement of Analysts
Estimate revisions for the third quarter have been primarily on
the negative side in the past 7 and 30 days. Only one analyst
lowered the estimate over the past week with no upward movement.
The last 30 days witnessed revisions in the negative direction by
two analysts. The negative sentiment continued for 2012 as well,
with one downward revision over the past 30 days and no positive
The cautious sentiment emanates from the adverse macro situation
that has dealt a blow to industry volumes resulting from reduced
physician office visits. As a result, the company's organic growth
has been on a declining trend over the past few quarters. The
current state of affairs would be better understood with LabCorp's
) reporting on October 17.
LabCorp is expected to update its contract extensions as renewal
) is expected to come up at the end of 2012. Meanwhile, shares of
LabCorp have been trading up over the recent past with rumors about
a possible acquisition. However, the company denied any such
Meanwhile, LabCorp has been following the acquisition route
which should further drive its top line. The main beneficiary from
added businesses would be the esoteric testing unit. The recent
acquisition of Medtox Scientific will enable LabCorp to strengthen
its foothold in specialized toxicology testing. We expect LabCorp
to share some details regarding this deal.
Magnitude of Estimate Revisions
Given the nominal estimate revisions, the consensus estimate for
the current quarter has dropped by a penny to $1.74 over the last
30 days. However, the estimate for fiscal 2012 has remained static
in the last month.
Going by past trends, we expect LabCorp to exceed estimates.
Barring the second quarter of 2012, the company exceeded estimates
in the past four quarters with a positive four-quarter average of
1.57%. This means that on an average, LabCorp has topped the Zacks
Consensus Estimate by this magnitude over the last four
In an effort to spur growth and profitability, LabCorp continues
to focus on strategic initiatives. It includes introduction of
innovative tests in the genomic/esoteric arena, specifically in the
area of cancer; greater focus on managed care organizations in
addition to aggressive penetration into the hospital market.
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. LabCorp is also paying due attention to IT
initiatives to improve physician and patient experience. However,
challenges remain in the form of suppressed volume and healthcare
We currently have a 'Neutral' recommendation on LabCorp over the
long term. The stock retains a Zacks #3 Rank (Hold) in the short
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