We have reaffirmed our Neutral recommendation on
Laboratory Corporation of America Holdings
), the second largest independent clinical laboratory company in
the U.S. This was primarily based on the company's current
low-volume growth environment that compelled it to lower the
fiscal 2012 outlook while posting the third-quarter results. The
stock currently carries a Zacks Rank #4 (Sell). However, the
company's efforts on pipe-line expansion and focus on the
high-margin esoteric testing business are expected to offset the
LabCorp's third-quarter performance was mixed as adjusted
earnings per share (EPS) remained ahead of the Zacks Consensus
Estimate, while revenues missed the mark. This poor revenues
performance 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. This led the company
to reduce the upper end of its growth outlook for 2012.
However, we believe that LabCorp's strong portfolio will drive
growth. The company is also working to expand its portfolio in
the new swab family of tests that allows performing various
women's health tests from a single-collection swab. 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 the IT
initiatives to improve physician and patient experience.
Moreover, LabCorp is concentrating on strategic acquisitions to
grow further, the recent being the acquisition of Medtox
Scientific that will help strengthen the company's foothold in
specialized toxicology testing.
The estimate revision trend depicted a somewhat cautious
stance for the current fiscal. Over the past 60 days, none of the
17 firms covering the stock made any upward estimate revisions,
while only 2 firms revised their estimates in the opposite
direction, implying that challenges will
persist and could intensify for LabCorp in the near term.
Other Stocks to Consider
While we prefer to remain on the sidelines on Volcano
Corporation, other medical device stocks worth a look are
Derma Science Inc.
Nxstage Medical Inc.
). Both the stocks carry a Zacks Rank #1 (Strong Buy).
DERMA SCIENCES (DSCI): Free Stock Analysis
LABORATORY CP (LH): Free Stock Analysis
NXSTAGE MEDICAL (NXTM): Free Stock Analysis
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