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LabCorp Well Poised on Covance Buyout, Strategic Alliances

On Sep 25, 2015, we issued an updated research report on Laboratory Corporation of America HoldingsLH , a leading independent clinical laboratory company. LabCorp, during its second full quarter post the acquisition of Covance, is working on portfolio expansion and focusing more on the high-margin esoteric testing business to drive its top line.

With the acquisition of Covance, which has commenced operations as Covance Drug Development, LabCorp expects to expand the company's range of diagnostic offerings and create a new industry leader in both the laboratory testing and CRO spaces. The combined company will act as a leading provider of medical testing apart from operating as a premier full-service drug development organization.

LabCorp expects this transaction to be accretive to adjusted earnings per share in 2015 before synergies. In the second quarter (the first full quarter of the consolidated results of the combined company), the acquisition of Covance contributed $621 million to the company's revenues, driving 41% year-over-year growth.

LabCorp has also strengthened its foothold in the diagnostics space through both organic and inorganic means, and plans to collaborate with leading companies and academic institutions to provide a wider portfolio of tests.

Recently, the company entered into a strategic partnership with Japan-based clinical laboratory services provider, Sysmex Corporation. Under the terms of the collaboration, Sysmex Inostics - a subsidiary of Sysmex Corporation - will offer reagents and associate services to LabCorp that will enable Covance's central labs to perform molecular genetic analyses to facilitate clinical trials in oncology. The company has also signed a strategic agreement with biotechnology company ORIG3N, a leading provider of induced pluripotent stem cell (iPSC) repository, called LifeCapsule.

Also, as part of its five-pillar strategy, LabCorp is currently working hard on new innovations with academic institutions in order to capture the growing lab testing market with its advanced assays and tools.

However, the current economic uncertainty continues to adversely affect LabCorp, with the strengthening of the dollar weighing on its year-over-year top-line performance. Moreover, we are concerned about the Medicare payment reductions, the recently introduced molecular pathology codes and implementation of sequestration.

LabCorp currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Other medical instruments stocks that warrant a look are CR Bard Inc. BCR , DENTSPLY International Inc. XRAY and Steris Corp. STE . All the three stocks carry the same Zacks Rank as LabCorp.

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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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