Test Menu Expansion by LabCorp

Zacks

Laboratory Corporation of America Holdings (LH) recently launched an expanded testing menu to diagnose, treat and evaluate the course of Inflammatory Bowel Disease (:IBD). The expanded test menu supplements the company’s wide portfolio of digestive disease testing.

About IBD

Gastrointestinal (:GI) tract illnesses are not easily identifiable due to non-specific symptoms in the patient. IBD is one the most prevalent GI tract disorders which causes acute discomfiture. Ulcerative colitis and Crohn’s disease are the two clinical manifestations of IBD. These forms of IBD are difficult to treat due to the use of immunosuppressant therapies, biological drugs and/or surgery.

LabCorp’s expanded testing profile will enable clinicians to diagnose and treat patients suffering from IBD. Further, the company’s latest offering can distinguish between the two clinical forms of IBD. The expanded testing menu constitutes specific antibody markers for both ulcerative colitis and Crohn’s disease. The inclusion of the markers enhances diagnostic sensitivity and also predicts the likelihood of the severity of the disease in patients.

Our Take

LabCorp is continuously working on portfolio expansion to drive top line. This should help the company to capture larger share of the $60 billion domestic lab market.

With a burgeoning healthcare expenditure, anticipated expansion in healthcare coverage, demographic tailwinds and cost efficiency among others, there is no dearth of positive catalysts for LabCorp. Given this backdrop, we expect the new addition to its portfolio to garner incremental revenues.

However, challenging volume environments for testing laboratories and utilization weaknesses across the healthcare sector are a cause of concern. Further, margins continue to remain under pressure. Although the company’s share buyback activity might provide some cushion, we remain watchful of the poor bottom-line guidance for 2013 which implies that industry trends are not expected to improve in the near-term.

Accordingly, the stock carries a Zacks Rank #3 (Hold). However, other healthcare stocks such as Becton, Dickinson and Company (BDX), The Cooper Companies (COO) and MWI Veterinary Supply (MWIV) are expected to do well. These stocks carry a Zacks Rank #2 (Buy).

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