Markets

LabCorp (LH) Q3 Earnings Beat Estimates, Margins Expand

Laboratory Corporation of America Holdings LH or LabCorp reported third-quarter 2020 adjusted earnings per share (EPS) of $8.41, a significant rise from the year-ago quarter figure of $2.90. The adjusted figure excludes the impact of amortization, restructuring charges and special items. The bottom line surpassed the Zacks Consensus Estimate by 58.9%.

On a reported basis, net earnings were $7.17 per share, compared with the year-ago figure of $2.25 per share.

Revenues in the quarter under review increased 33% year over year to $3.90 billion. It exceeded the Zacks Consensus Estimate by 4.8%.

The increase in revenues can be attributed to 31.5% growth in organic revenues, 1.9% growth from acquisitions and a 0.5% impact of favorable foreign currency translation. The organic revenue growth comprises 32.6% contribution from COVID-19 Testing, partially offset by a 1.1% reduction in the company's organic Base Business (business operation excluding the company’s COVID-19 testing) due to the pandemic.

The lower organic revenues could also be attributed to a 0.7% adverse impact of lower Medicare and Medicaid pricing as a result of implementation of Protecting Access to Medicare Act (PAMA).

Quarter in Detail

LabCorp reports results under two operating segments — LabCorp Diagnostics and Covance Drug Development.

In the third quarter, LabCorp Diagnostics reported revenues of $2.70 billion, reflecting 53.7% rise year over year. On an organic basis, revenues were up 52.3%. This included a 54.2% contribution from COVID-19 testing, partially offset by 1.9% negative impact of COVID-19 on the organic Base Business. The decline of the organic Base Business includes a 1.1% negative impact from PAMA. Acquisition-related growth was 1.4% in the quarter.

Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise

Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise

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

The company witnessed a 21.8% rise in total volume (measured by requisition). Organic volume improved by 20% and acquisition volume growth was 1.8%. Organic volume growth was primarily based on a 28.8% contribution from growing demand for COVID-19 Testing, partially offset by 8.9% reduction in Base Business due to the pandemic.

Covance Drug Development revenues grew 5.7% to $1.24 billion in the third quarter on organic growth of 3.8%, acquisitions growth of 0.5% and favorable foreign currency translation of 1.4%. Excluding COVID-19 Testing, organic revenues were flat year over year.

Margins

Gross margin expanded 1212 basis points (bps) to 40% in the third quarter. Also, adjusted operating income improved 4.5% year over year to $419.5 million. Adjusted operating margin expanded 1506 bps from the year-ago quarter to 29.3%.

Cash Position

LabCorp exited the third quarter with cash and cash equivalents of $557 million compared with $557 million at the end of the second quarter. Cumulative cash flow from operating activities at the end of the third quarter was $1,360.7 million, up from $874.9 million a year ago. Additionally, cumulative free cash flow at the end of the third quarter was $1,078.4 million, up from $602.9 million a year ago.

Earlier, the company had temporarily suspended its existing share repurchase program due to the pandemic. This time the company noted that it has reinstated its share repurchase program.

2020 View

The company did not provide 2020 guidance as it is still unable to gauge the impact of the ongoing COVID-19 pandemic.

Our Take

LabCorp exited the third quarter of 2020 with better-than-expected earnings and revenues. These figures improved on a year-over-year basis as well.

Diagnostics revenues in the quarter were significantly high on organic volume improvements as a result of growing demand for COVID-19 testing. Although there were still negative impacts of COVID-19 on organic Base Business, the magnitude of this decline has reduced from the second quarter.

Also, Covance Drug Development delivered higher sales.

Zacks Rank

LabCorp currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks from the same space include Insulet PODDIDEXX Laboratories, Inc. IDXX and ResMed RMD.

The Zacks Consensus Estimate for Insulet’s third-quarter 2020 adjusted EPS is currently pegged at 6 cents. The consensus estimate for third-quarter revenues stands at $220.89 million. The company currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IDEXX currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its third-quarter 2020 adjusted EPS is currently pegged at $1.41. The consensus estimate for third-quarter revenues stands at $666.7 million.

The Zacks Consensus Estimate for ResMed's first-quarter fiscal 2021 adjusted EPS is currently pegged at 95 cents. The consensus estimate for revenues stands at $702.4 million. It currently has a Zacks Rank #2.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.5% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
ResMed Inc. (RMD): Free Stock Analysis Report
 
Laboratory Corporation of America Holdings (LH): Free Stock Analysis Report
 
IDEXX Laboratories, Inc. (IDXX): Free Stock Analysis Report
 
Insulet Corporation (PODD): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

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

Other Topics

Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More