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Earnings Preview: LabCorp - Analyst Blog

Laboratory Corporation of America Holdings ( LH ) is scheduled to release its first quarter fiscal 2012 earnings on Thursday, April 19, 2012, before the market opens. The company is expected to report earnings per share ("EPS") of $1.67 on revenue of $1.404 billion for the quarter, according to the Zacks Consensus Estimate.

Prior-Quarter Highlights

LabCorp reported an adjusted EPS of $1.56 (excluding amortization, restructuring and other special charges) for the fourth quarter of fiscal 2011. The result was higher than the Zacks Consensus Estimate of $1.53 and the previous year's adjusted EPS of $1.46. For the fiscal, adjusted EPS came in at $6.37, ahead of the Zacks Consensus Estimate of $6.30 and $5.98 earned in the previous year. The year 2011 took into account a full year of Genzyme Genetics' operations.

Revenues increased 5.5% year over year to $1,366.1 million, missing the Zacks Consensus Estimate of $1,375 million. Testing volume (measured by requisitions) and revenue per requisition increased 1.2% and 4.2%, respectively. For the full year, revenues increased 10.8% to $5,542.3 million, lagging behind the Zacks Consensus Estimate of $5,551 million.

Agreement of Analysts

Estimates for the first quarter have not witnessed any change in the past 7 or 30 days. For the current fiscal, however, 2 out of 17 analysts covering the stock have raised their estimates in the past 7 and 30 days.

Pricing has remained intensely competitive in the industry. Besides, the adverse macro situation has delved a blow to industry volumes resulting from reduced physician office visits. This is evident in the continuous decline in organic growth at LabCorp over the past few quarters. Organic growth dwindled to 0.7% in the fourth quarter after 3% in the first, 2% in the second and 1.2% in the third quarter of fiscal 2011.

Volume in the first quarter of 2012 is however likely to improve due to the extra leap day and a general improvement in the economy. Quest Diagnostics ' ( DGX ) earnings release scheduled for today, before the start of trading, would be an indicator of market trends.

As for LabCorp, despite the sustained softness in this market for the past couple of quarters, analysts have stood by their estimates, indicating a more or less in line quarter. With respect to contract extensions, renewal with Humana ( HUM ) is expected to come up at the end of 2012. The company might provide some color on contract renewals, during the earnings call, including the one with Horizon Blue Cross Blue Shield in New Jersey that expired at 2011 end.

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 company currently derives approximately 40% of revenues from genomic, esoteric and anatomic pathology categories, which is expected to increase to 45% in the next 3-5 years.

We expect LabCorp to share some details regarding its acquisition plans for 2012. In the absence of lucrative deals, the company has been following share repurchase activities to strengthen its bottom line.

Magnitude of Estimate Revisions

For the current quarter, the consensus estimate has remained static at $1.67 over the last 30 days. However, the estimate for fiscal 2012 has gone up by a penny to $6.99 over the past 7 days.

Surprise

Going by past trends, we expect LabCorp to exceed estimates. The company exceeded estimates consistently in the past four quarters with a positive four-quarter average of 3.9%. This means that on an average, LabCorp has topped the Zacks Consensus Estimate by this magnitude over the last four quarters.

Recommendation

LabCorp continues to focus on strategic initiatives to drive growth and profitability. 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. Leveraging its strong balance sheet, LabCorp is intent on suitable acquisitions in esoteric testing. The stock retains a Zacks #2 Rank ('Buy') in the short term.

We currently have a 'Neutral' recommendation on LabCorp over the long term.

QUEST DIAGNOSTC ( DGX ): Free Stock Analysis Report

HUMANA INC NEW ( HUM ): Free Stock Analysis Report

LABORATORY CP ( LH ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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