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LabCorp (LH) Q1 Earnings Surpass Estimates, View Raised

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Laboratory Corporation of America Holdings LH or LabCorp reported first-quarter 2021 adjusted earnings per share (EPS) of $8.79, a significant rise from the year-ago quarter figure of $2.37. The adjusted figure excludes the impact of amortization and restructuring costs and COVID-related costs among others. The bottom line surpassed the Zacks Consensus Estimate by 20.1%.

On a GAAP basis, net earnings were $7.82 per share as against the year-ago figure of loss of $3.27 per share.

Revenues in the quarter under review increased 47.4% year over year to $4.16 billion. It exceeded the Zacks Consensus Estimate by 7.2%.

Quarter in Detail

The increase in revenues can be attributed to 45% growth in organic revenues, 0.9% growth from acquisitions and 1.4% contribution from favorable foreign currency translation. The organic revenue growth comprises 32.9% contribution from COVID-19 testing and 12.2% rise in the company's organic Base Business (business operation excluding the company’s PCR and antibody COVID-19 testing).

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

Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise

Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise
Laboratory Corporation of America Holdings Price, Consensus and EPS Surprise

Laboratory Corporation of America Holdings price-consensus-eps-surprise-chart | Laboratory Corporation of America Holdings Quote

In the first quarter, LabCorp Diagnostics reported revenues of $2.76 billion, reflecting 62% rise year over year. On an organic basis, revenues were up 60.8%. This included a 54.5% contribution from COVID-19 testing and a 6.3% rise in Base Business. The Base Business includes a 2% negative impact from adverse weather. Acquisition-related growth was 0.9% in the quarter while favorable foreign currency translation was 0.4%.

The company witnessed a 27.3% rise in total volume (measured by requisition). Organic volume improved 26.6%. Acquisition volume growth was 0.7%. Organic volume growth was primarily based on a 27.9% contribution from COVID-19 testing demand, partially offset by 1.3% reduction in organic Base Business.

Covance Drug Development revenues grew 25.7% to $1.44 billion in the first quarter on organic growth of 21.9%, acquisition growth of 1% and favorable foreign currency translation of 2.9%. The organic growth included a 19.7% increase in the Base Business and a 2.2% contribution from COVID-19 testing performed through its Central Laboratories business.

Margins

Gross margin expanded 1264 basis points (bps) to 38.4% in the first quarter. Also, adjusted operating income was $1.17 billion compared with $332.5 million a year ago. Adjusted operating margin expanded 1632 bps from the year-ago quarter to 28.1%.

Cash Position

LabCorp exited the first quarter with cash and cash equivalents of $1.89 billion compared with $1.32 billion at the end of the fourth quarter. Cumulative cash flow from operating activities at the end of the first quarter was $1.16 billion, up from $203.8 million a year ago. Additionally, cumulative free cash flow at the end of the first quarter was $1.1 billion, up from $97 million a year ago.

At the end of the first quarter, the company had $731.5 million of authorization remaining under its share repurchase program.

2021 View

The company has raised its 2021 guidance. Total Labcorp Enterprise revenues are expected to grow in the range of 2-6% (earlier expectation was down 1% to up 4.5%). This includes Base Business growth in the range of 13.5% to 16% (11% to 13.5%) and COVID-19 testing revenue decline in the range of 35% to 50% (unchanged).

Total Diagnostics revenues are expected to decline in the range of 0% to 5% (earlier expectation was down 0.5% to 7.5%). Total Drug Development revenues are expected to rise 12% to 14% (8% to 10.5% expected growth) from 2020.

Our Take

LabCorp exited the first quarter of 2021 with better-than-expected earnings and revenues. These figures improved on a year-over-year basis as well.

Diagnostics revenues in the quarter were significantly high on organic volume improvements as a result of high demand for COVID-19 testing. Base Business too recovered significantly in the quarter as this part of the business is recovering fast.

Also, Covance Drug Development delivered higher sales. In the quarter under review, Drug Development benefited from broad-based demand across businesses, including COVID-19 vaccine and therapeutic work.

The company’s raised 2021 guidance, though it takes into account fast recovering base business, also projects significant sinking of COVID-related testing revenues.

Zacks Rank

LabCorp currently has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical space include Semler Scientific Inc. SMLR, Owens & Minor, Inc. OMI and DENTSPLY SIRONA Inc. XRAY.

Semler is expected to release results on May 3. The Zacks Consensus Estimate for the company’s first-quarter 2021 adjusted EPS is currently pegged at 48 cents. The consensus mark for first-quarter revenues stands at $11.9 million. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Owens & Minor is scheduled to release results on May 5. The Zacks Consensus Estimate for its first-quarter 2021 adjusted EPS is currently pegged at 97 cents. The consensus estimate for first-quarter revenues stands at $2.29 billion. The company currently carries a Zacks Rank #2 (Buy).

DENTSPLY SIRONA is slated to release results on May 6. The Zacks Consensus Estimate for first-quarter 2021 adjusted EPS is currently pegged at 55 cents. The consensus estimate for revenues stands at $929.3 million. The company currently carries a Zacks Rank #2.

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