On Jul 25, 2014, we issued an updated research report on
Laboratory Corporation of America Holdings
), a leading independent clinical laboratory company. LabCorp
posted a sequentially improved and better-than-expected second
quarter securing both top and bottom-line beats. The company is
working on portfolio expansion and is focusing further on the
high-margin esoteric testing business to drive its top line.
LabCorp reported second-quarter adjusted earnings per share of
$1.84, up 2.2% year over year and ahead of the Zacks Consensus
Estimate of $1.77. Revenues increased 3.3% to $1,516.4 million
beating the Zacks Consensus Estimate of $1,504 million.Significant
increase in test volume acted as the main impetus behind the
company's top-line 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 further on the high-margin esoteric testing
business, which is expected to contribute 45% of total sales in the
next 3-5 years.
As part of its five-pillar strategy, LabCorp is currently
working hard on new innovations with academic institutions in order
to capture the growing lab testing market with its advanced assays
and tools. Recently, LabCorp entered into the substantial BRCA
testing market which comprises a suite of tests for the assessment
of breast cancer risk. Given the continuous focus on portfolio
expansion, we are confident of the company garnering higher
revenues from specialized testing, going forward.
The current economic uncertainty affects physician office
visits, which in turn reduces volumes at LabCorp. The company
witnessed a 5.3% increase in testing volume (measured by
requisitions and fold-in acquisitions) which was partially offset
by a mix. On the other hand, the company reported poor revenue per
requisition (down 2.0% year over year) that reflects Medicare
payment reductions and an unfavorable test mix.
This low growth rate was primarily due to a challenging volume
environment for testing laboratories and utilization weaknesses
across the healthcare sector. Low level of employment and slow
growth of commercially insured lives will continue to affect the
company's overall growth until the economy rebounds. With the
company's 2014 revenue growth guidance of 2%, we expect this low
organic growth environment to continue.
LabCorp currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Other top-ranked medical stocks worth a look include Align
Technology Inc. (
), Sirona Dental Systems Inc. (
McKesson Corp (
). All the three stocks carry a Zacks Rank #2 (Buy).
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