Here's Why You Should Add LabCorp (LH) to Your Portfolio Now
Laboratory Corporation of America Holdings LH or LabCorp has been gaining from consistent recovery across its businesses in the third quarter of 2021. Further, its raised full-year guidance buoys optimism. However, foreign currency fluctuations and stiff competition are concerns.
Over the past year, the Zacks Rank #1 (Strong Buy) stock has surged 48.3% in the past year compared with the industry’s 12.4% growth and the S&P 500’s 24.4% rise.
The renowned healthcare diagnostics company, offering comprehensive clinical laboratory services and end-to-end drug development support provider, has a market capitalization of $28.95 billion. The company projects 10.6% growth for the next five years and expects to maintain strong segmental performance. The company surpassed estimates in the trailing four quarters, the average surprise being 25.73%.
Key Growth Catalysts
Impressive Q3 Results: LabCorp exited the third quarter of 2021 with better-than-expected earnings and revenues. The company registered consistent recovery across both of its businesses. In Diagnostics, the company experienced broad geographic recovery in Base Business and across the company’s testing portfolio. Drug Development continues to recover, with nearly 85% of sites now open. The business also saw decentralized trials increasing by more than 50% versus the prior year. In terms of COVID-19 response, in the third quarter, LabCorp experienced greater-than-anticipated COVID-19 testing volumes. The company’s recent receipt of the Emergency Use Authorization (EUA) for a combined COVID and flu-at-home collection kit is another upside of the quarter.
Covance Drug Development Growth Continues: This business is benefitting from collaborations with leading pharmaceutical and biotechnology companies with whom it started to work on potential antivirals, treatments and vaccines. In the third quarter, within this business, revenues improved 17.5% year over year, riding on organic Base Business growth of 19.9%, acquisitions growth of 0.4% and favorable foreign currency translation of 100 basis points. Drug Development Base Business benefited from broad-based growth across all businesses, including COVID-19 vaccine and therapeutic work.
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Raised Guidance: The company raised its 2021 guidance. Total LabCorp Enterprise revenues are expected to grow in the range of 13-14% (earlier expectation was 6.5-9% growth). This includes Base Business growth in the range of 18.5-19.5% (17-19%). COVID-19 testing revenues are expected to decline in the band of 6-11% (down 33-38%).
Total Diagnostics revenues are expected to grow 8-10% (earlier expectation was down 1% to up 2%). Total Drug Development revenues are expected to rise 19.5-20.5% (17-19% growth expected earlier) from 2020.
Downsides
Exposed to Currency Headwind: With LabCorp deriving a huge share of its revenues internationally, it remains highly exposed to currency fluctuations. Unfavorable currency movements have been a major dampener over the last few quarters, as in the case of other important MedTech players too.
Competitive Landscape: LabCorp faces intense competition from its major competitor, Quest Diagnostics, and other commercial laboratories and hospitals. In a $55-billion U.S. lab market, hospitals control an estimated 55% of the diagnostic test market compared to LabCorp’s 10% share.
Estimate Trends
LabCorp is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 15.1% north to $27.36.
The Zacks Consensus Estimate for 2021 revenues is pegged at $15.93 billion, suggesting 13.9% growth from the year-ago reported number.
Other Key Picks
Few other top-ranked stocks in the broader medical space include Thermo Fisher Scientific Inc. TMO, McKesson Corporation MCK and NextGen Healthcare, Inc. NXGN.
Thermo Fisher surpassed earnings estimates in each of the trailing four quarters, the average surprise being 9.02%. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Thermo Fisher’s long-term earnings growth rate is estimated at 14%. The company’s earnings yield of 3.7% compares favorably with the industry’s (3.6%).
McKesson beat earnings estimates in each of the trailing four quarters, the average surprise being 19.9%. The company currently carries a Zacks Rank #2.
McKesson’s long-term earnings growth rate is estimated at 8.9%. The company’s earnings yield of 9.9% compares favorably with the industry’s 3.2%.
NextGen Healthcare surpassed earnings estimates in each of the trailing four quarters, the average surprise being 16%. The company currently carries a Zacks Rank of 2.
NextGen Healthcare’s long-term earnings growth rate is estimated at 8.5%. The company’s earnings yield of 5.9% compares favorably with the industry’s (4.1%).
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Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report
Thermo Fisher Scientific Inc. (TMO) : Free Stock Analysis Report
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NEXTGEN HEALTHCARE, INC (NXGN) : Free Stock Analysis Report
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