LabCorp (LH) Q4 Earnings: What's in the Cards for the Stock?

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Laboratory Corp. of America HoldingsLH , or LabCorp, is expected to report fourth-quarter 2016 results before the market opens on Feb 16.

Last quarter, the company reported a negative earnings surprise of 1.75% with an average beat of 0.42% for the trailing four quarters. Let's see how things are shaping up prior to this announcement.

Factors at Play

Recently, LabCorp completed the acquisition of Sequenom, Inc. with the aim to expand its presence in both domestic and international levels. The addition of Sequenom has positioned the company as the market leader in non-invasive prenatal testing (NIPT), women's health and reproductive genetics. While the integration process is going on, we expect to see top-line contribution coming from Sequenom in the fourth quarter itself.

Laboratory Corporation of America Holdings Price and EPS Surprise

Laboratory Corporation of America Holdings Price and EPS Surprise | Laboratory Corporation of America Holdings Quote

Meanwhile, the company continues to focus on expanding its testing capabilities beyond the conventional health care setting. Earlier, LabCorp announced the nationwide availability of testing for Zika virus using the Zika Immunoglobulin M (IgM) Antibody Capture Enzyme-Linked Immunosorbent Assay (Zika MAC-ELISA). We believe this will help the company meet the growing health care needs in the days ahead.

Management also intends to continue the company's expansion drive in the food safety test space by making the best use of its expertise. The company also wants to emphasize on innovation through commercialization of new technologies that allow faster pathogen detection. LabCorp is also developing innovative solutions and expanding therapeutic expertise in critical areas of drug development to come up with ground-breaking medicines. We believe these recent developments will contribute to the company's top line in the fourth quarter as well.

In this regard we note that, including Sequenom, for full-year 2016, the company expects net revenue growth in the range of 10−11% over 2015. Adjusted EPS (earnings per share) guidance for 2016 is expected in the range of $8.70−$8.90 (earlier expectation: $8.60−$8.95).

However, foreign exchange woes and intense competition from major commercial laboratories and hospitals may act as headwinds. For the full year, the company projects a 60 basis points impact from foreign exchange risks due to the strengthening of dollar. We are also highly disappointed with the CMS proposal related to the Protecting Access to Medicare Act (PAMA).

Earnings Whispers

Our proven model does not conclusively show that LabCorp is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: LabCorp has an Earnings ESP of -0.47%. This is because the Most Accurate estimate stands at $2.12 while the Zacks Consensus Estimate is pegged higher at $2.13. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: LabCorp has a Zacks Rank #3 which increases the predictive power of ESP. However, a negative ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

BioMarin Pharmaceutical Inc. BMRN has an Earnings ESP of +7.5% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here.

Antero Midstream Partners LP AM has an Earnings ESP of +11.43% and a Zacks Rank #3.

Century Aluminum Company CENX has an Earnings ESP of +62.5% and a Zacks Rank #3.

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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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