Higher Testing Volume to Aid LabCorp's (LH) Q3 Earnings

Laboratory Corporation of America Holdings LH, also known as LabCorp, is slated to report third-quarter 2020 results on Oct 27, before market open.

In the last-reported quarter, the company’s adjusted earnings of $2.57 exceeded the Zacks Consensus Estimate of 87 cents by a huge margin of 229.5%. The company beat estimates in each of the trailing four quarters, the average surprise being 67.1%.

Factors at Play

LabCorp seems to be well poised on its three key strategies — delivering advanced diagnostics, bringing new medicines to patients faster and using technology to improve patient care. However, like other industry participants, the company’s third-quarter performance is expected to have borne the impact of controlled social mixing and near standstill international trade to combat the spread of COVID-19.

From the second quarter onward, the company started witnessing month-wise rebound in volumes of base testing as well as COVID-19 testing services. In the month of June, volumes were up year over year and COVID-19-related testing more than offset the decline in the Base Business. Through the third quarter, the company made several significant strides in the field of COVID-19 diagnostic testing. Further, there has been continued upturn in base testing volume with people gradually returning to their doctors for testing and clinical trials activity resuming.

Laboratory Corporation of America Holdings Price and EPS Surprise

Laboratory Corporation of America Holdings Price and EPS Surprise

Laboratory Corporation of America Holdings price-eps-surprise | Laboratory Corporation of America Holdings Quote

We expect to see a strong rebound in the volume of non-COVID-19 testing when LabCorp announces third-quarter results, considering the recent market trend in the lab testing space.

In terms of COVID-19 related testing, in late June, the company launched its much-awaited neutralizing antibody test. LabCorp claimed this test to help in accelerating the assessment of vaccine candidates so that a successful candidate is discovered soon. Considering the increasing number of coronavirus cases through the third quarter, this launch within LabCorp’s Covance Drug Development Business is expected to contributed to its third-quarter segment top line.

Further, the Covance business has been working with companies like Adaptive Biotechnologies and Microsoft to focus on immune response to the virus. Separately, it is also working with Pacific Bioscience on unique research programs on virus characteristics that can support patient treatment decisions. This development too is likely to have added to the company’s third-quarter top line.

LabCorp has also significantly expanded accessibility of PCR testing to reach even those in underserved communities. The company is the first lab authorized for at-home sample collection through Pixel by LabCorp platform, and the first to offer a seamless digital service to help doctors electronically order a COVID-19 at-home sample collection for patients as appropriate. To help meet the rapid acceleration in sample volumes, the company received an EUA for pool testing. In September, the company launched the first testing method to simultaneously detect COVID-19, influenza A / B and respiratory syncytial virus (RSV).All these developments are likely to have contributed to the company’s third-quarter COVID-19 related testingbusiness significantly.

Key Q3 Estimates

The Zacks Consensus Estimate for third-quarter earnings of $5.29 per share implies an 82.4% rise from the year-ago reported figure. The consensus estimate for revenues is pegged at $3.72 billion, suggesting 27.1% improvement from the prior-year reported number.

What Our Quantitative Model Suggests

Per our proven model, stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) have a good chance of beating estimates. This is exactly the case as you can see:

Earnings ESP: LabCorp has an Earnings ESP of +0.39%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: LabCorp carries a Zacks Rank #3.

Other Stocks Worth a Look

Here are some other medical stocks also worth considering as these too have the right combination of elements to beat on earnings this reporting cycle.

Humana HUM currently has a Zacks Rank #2 and an Earnings ESP of +3.35%.. You can see the complete list of today’s Zacks #1 Rank stocks here.

DaVita DVA has an Earnings ESP of +2.88% and a Zacks Rank of 1, at present.

LHC Group LHCG has an Earnings ESP of +1.85% and a Zacks Rank of 2, at present.

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Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

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