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LabCorp (LH) Up 1.1% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Laboratory Corporation of America HoldingsLH . Shares have added about 1.05% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is LH due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

LabCorp reported fourth-quarter 2017 adjusted earnings per share (EPS) of $2.45, up 13.9% from the year-ago quarter. The bottom line also exceeded the Zacks Consensus Estimate by 3.4%. One-time benefit related to the Tax Cuts and Jobs Act in the reported quarter, affected adjusted EPS by 5 cents, approximately.

On a reported basis, LabCorp's net earnings came in at $6.81 per share as compared to $1.75 in the year-ago period.

Full-year adjusted EPS was $9.60, missing the Zacks Consensus Estimate of $10.19. However, the metric registered 8.7% growth over the year-ago adjusted number.

Net revenues for the fourth quarter increased 13.2% year over year to $2.70 billion. However, the top line lagged the Zacks Consensus Estimate of $2.71 billion by a close margin.

The year-over-year rise in net revenues was owing to 10% growth from acquisitions, organic growth (net revenue growth minus revenues from acquisitions for the first twelve months after the close of each acquisition) of 2.6% and a benefit of approximately 60 basis points from foreign currency translation.

Net revenues for the year 2017 were $10.21 billion, up 8.2% over the preceding year's number. The metric is also ahead of the Zacks Consensus Estimate of $10.19 billion by 0.2%.

Quarter Under Review

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

In the reported quarter, LabCorp Diagnostics reported net revenues of $1.82 billion, up 8.6% year over year, fueled by tuck-in acquisitions, organic volume (measured by requisitions excluding requisitions from acquisitions for the first 12 months after the completion of each acquisition) and a gain from foreign currency translation of roughly 30 basis points. The company reported a 6.6% rise in total volume (measured by requisition) and a 1.8% increase in revenue per requisition in the concerning quarter.

After several quarters of drag in sales, Covance Drug Development reported a 23.8% rise in net revenues to $886.1 million in the fourth quarter. This upside was primarily on the back of Chiltern buyout, organic growth and the foreign currency translation benefit of nearly 140 basis points.

Gross margin deteriorated 92 bps to 30.4% in the reported quarter. Adjusted operating income declined 3.6% year over year to $328.6 million. Adjusted operating margin contracted 212 bps from the year-ago quarter to 12.2% on a 21.1% rise in selling, general and administrative expenses to $492.4 million.

LabCorp exited the year 2017 with cash and cash equivalents of $316.7 million compared with $433.6 million at the end of 2016. Full-year operating cash flow was $564 million, 25.6% up from $448.9 million in the year-ago period. Free cash flow came in at $1.1 billion in 2017, up 28% from the year-ago quarter. During the quarter under discussion, the company returned $40 million to shareholders via share repurchases and has shares worth $407.4 million, remaining under its existing authorized share repurchase plan.

LabCorp has provided its 2018 guidance.

Revenue growth is expected to remain in the band of 9.5-11.5% from 2017 including a likely improvement of 60 bps from a foreign currency translation. The Zacks Consensus Estimate for current-year revenues is pegged at $11.06 billion.

Adjusted EPS guidance for 2018 has been projected in the range of $11.30-$11.70. The consensus mark of $10.67 for the metric falls below the guided range.

Free cash flow has been anticipated within $1.1-$1.2 billion, growth in the band of 0-9.1% from the prior year.

How Have Estimates Been Moving Since Then?

In the past month , investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter.

Laboratory Corporation of America Holdings Price and Consensus

Laboratory Corporation of America Holdings Price and Consensus | Laboratory Corporation of America Holdings Quote

VGM Scores

At this time, LH has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was also allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, LH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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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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