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Here's Why You Should Hold on to LabCorp (LH) Stock Now

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Zacks Equity Research
·4 min read
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Laboratory Corporation of America Holdings LH or LabCorp is well-poised for growth in coming quarters backed by strong demand for COVID-19 testing. Further, its Covance Drug Development business is progressing well on acquisitions and organic growth. However, foreign currency fluctuations and stiff competition is still a concern.

Over the past year, the Zacks Rank #3 (Hold) stock has surged 78.9% in the past year compared with the industry’s 37.9% growth and the S&P 500’s 51.2% rise.

The renowned healthcare diagnostics company, offering comprehensive clinical laboratory services and end-to-end drug development support provider, has a market capitalization of $25.44 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 88.9%.

Riding on the company’s current business growth and bullish near-term prospects, this stock is worth holding on to, for now.

Key Growth Drivers

Progress With COVID-19 Tests: We are upbeat about LabCorp’s response toward combatting the pandemic. LabCorp was the first commercial lab to launch PCR testing on Mar 5, just after the FDA liberalized the rules around Emergency Use Authorization (EUA) for testing. Through 2020, the company developed six EUA COVID tests and performed approximately 35 million COVID tests in 2020. It has helped to bring multiple treatments and vaccines to market in record time. The company is also the first to offer an at-home PCR collection kit with or without a prescription through Pixel by LabCorp.

Collaborations: We are optimistic about the Covance Drug Development business benefitting from collaborations with leading pharmaceutical and biotechnology companies on potential antivirals, treatments and vaccines. The notable collaborations include the alliance with Ridgeback Biotherapeutics to test an antiviral drug. Further, the Covance business is working with companies like Adaptive Biotechnologies and Microsoft to focus on immune response to the virus.

Downsides

On the flip side, there are some factors that have been deterring the stock’s rally of late.

Currency Fluctuations: With LabCorp deriving a huge share of its revenues internationally, it is highly exposed to currency fluctuations. Unfavorable currency movements have been a major dampener over the last few quarters, as is the case for other important MedTech players as well.

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 14.3% north to $21.36.

The Zacks Consensus Estimate for its first-quarter 2021 revenues is pegged at $3.88 billion, suggesting 37.6% growth from the year-ago reported number.

Zacks Rank and Key Picks

A few better-ranked stocks from the broader medical space include Align Technology, Inc. ALGN, DENTSLPY SIRONA, Inc. XRAY and The Cooper Companies COO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Align Technology has a projected long-term earnings growth rate of 20.8%.

DENTSPLY SIRONA has an estimated long-term earnings growth rate of 20%.

The Cooper Companies has a projected long-term earnings growth rate of 11%.

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Zacks Investment Research