We recently reiterated our Neutral recommendation on
Laboratory Corporation of America Holdings
), the second largest independent clinical laboratory company in
the U.S. While we are confident about the company garnering
higher revenues from specialized testing, its stable liquidity
position and value added acquisitions, concerns linger around the
overall soft industry trends leading to low organic volume. The
stock currently carries a Zacks Rank #3 (Hold).
Why at Neutral?
LabCorp posted dismal fourth-quarter 2012 results with
adjusted earnings per share (EPS) of $1.54 missing the year-ago
number by 1.3% as well as the Zacks Consensus Estimate of
$1.61.Although revenues increased 2.9%, a mere 2.8% increase in
testing volume and a slight increase of 0.7% in organic volume
growth reflect the low-volume-growth environment. Also, Hurricane
Sandy negatively impacted the company's performance in the fourth
Moreover, concerns linger regarding the on-going reimbursement
cut. The government has been attempting to control reimbursement
of healthcare services including clinical testing. Changes in
governmental regulations will have a significant impact on
LabCorp's operations in 2013. According to LabCorp, this
reduction will negatively impact 2013 revenue by over $50.0 and
earnings per share by approximately $0.35.
However, we are encouraged to note that LabCorp recorded
approximately 40% of total revenues during the last reported
quarter from the genomic, esoteric and anatomic pathology
categories, which is expected to go up to 45% over the next 3−5
years. The esoteric volume during the quarter increased 3.5% on
the back of decent growth in specialized endocrinology and
coagulation businesses, cardiovascular and chronic kidney disease
As a result, the company is continuously launching several new
tests and has collaborated with major companies and academic
institutions to develop advanced tests. Given its continuous
focus on portfolio expansion, we are confident about the company
garnering higher revenues from specialized testing, going
Other Stocks to Consider
While we prefer to remain on the sidelines on LabCorp, other
medical device stocks worth a look are
Medical Action Industries Inc.
Given Imaging Ltd.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
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