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LabCorp (LH) Q4 Earnings Surpass Estimates, Margins Down

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Laboratory Corporation of America Holdings LH or LabCorp reported fourth-quarter 2021 adjusted earnings per share (EPS) of $6.77, down 35.9% from the year-ago $10.56. The adjusted figure excludes the impact of loss from venture fund investment, sale of business and debt refinancing costs, among others. The bottom line, however, surpassed the Zacks Consensus Estimate by 14.8%.

On a GAAP basis, net earnings for the fourth quarter were $5.75 per share, down 39.7% year over year.

Full-year adjusted EPS was $28.52, indicating a 19.1% surge from the year-ago period. The figure also surpassed the Zacks Consensus Estimate by 2.7%.

Revenues

Revenues in the quarter under review fell 9.7% year over year to $4.06 billion. However, it exceeded the Zacks Consensus Estimate by 2.9%.

The company reported total revenues of $16.12 billion in 2021, showing a 15.3% rise from 2020. It also surpassed the Zacks Consensus Estimate by 0.7%.

Quarter in Detail

The decline in revenues can be attributed to a 10.3% fall in organic revenues and 0.1% fall from divestitures. However, this decline was partially offset by 0.6% growth from acquisitions and 0.1% contribution from foreign currency translation. The decline in organic revenues comprises a 15.3% fall in contribution from COVID-19 Testing. However, this decrease in COVID-19 Testing was partially offset by a 5% rise in the company's organic Base Business (business operation excluding the company’s PCR and antibody COVID-19 testing).

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

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

In the fourth quarter, LabCorp Diagnostics reported revenues of $2.62 billion, reflecting a 16.9% fall year over year. On an organic basis, revenues were down 17.8%. This was partially offset by acquisitions growth of 0.7% and favorable foreign currency translation of 0.2%. The year-over-year decline resulted from a 21.8% fall in contribution from COVID-19 Testing, partially offset by a 4.1% rise in Base Business.

The company witnessed an 8.7% fall in total volume (measured by requisition) on an 8.9% decline in organic volume, partially offset by acquisition volume growth of 0.3%. Organic volume was primarily impacted by a 14.6% decrease in COVID-19 Testing, partially offset by a 5.7% rise in Base Business.

Covance Drug Development revenues grew 3.9% to $1.45 billion in the fourth quarter on organic Base Business growth of 7.9% and acquisitions growth of 0.3%. However, this organic growth was partially offset by a 4% decline in contribution from COVID-19 Testing performed through LabCorp’s Central Laboratories business and a 0.3% negative impact from divestitures.

Margins

Gross margin contracted 853 basis points (bps) to 33.9% in the fourth quarter. Adjusted operating income declined 40.1% year over year to $831.3 million. Adjusted operating margin contracted 1039 bps from the year-ago quarter to 20.5%.

Cash Position

LabCorp exited 2021 with cash and cash equivalents of $1.47 billion compared with $1.32 billion at the end of 2020. Cumulative cash flow from operating activities at the end of the year was $3.11 billion, down from $2.14 billion a year ago. Additionally, cumulative free cash flow at the end of the fourth quarter was $697.5 million, down from $774.6 million a year ago.

At the end of 2021, the company repurchased shares worth $1,668.5 million under its existing share repurchase program.

2022 View

The company provided its 2022 guidance. Total LabCorp Enterprise revenues are expected to decline in the range of 1.5-6.5%. This includes Base Business growth in the range of 7.5-10.0%. COVID-19 testing revenues are expected to decline in the range of 60-75%.

Total Diagnostics revenues are expected to fall in the range 11.5-17.5%. Total Drug Development revenues are expected to rise 7.0-9.5% from 2021.

The Zacks Consensus Estimate for full-year revenues is pegged at $14.53 billion.

The company expects full-year adjusted EPS in the band of $17.25-$21.25. The Zacks Consensus Estimate for the metric is pinned at $18.41.

Our Take

LabCorp exited the fourth quarter of 2021 with better-than-expected earnings and revenues. Robust performance by the Covance Drug Development segment buoys optimism. Further, growth in the company's organic Base Business appears promising. An increase in the short-term cash level is an added advantage.

However, a year-over-year decline in earnings and revenues for the fourth quarter does not bode well for the company. A fall in Diagnostics’ revenues also raises apprehension. Contraction of both margins is another downside.

Zacks Rank and Key Picks

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

Here are a few stocks worth considering, as these have the right combination of elements to beat on earnings this reporting cycle.

AMN Healthcare Services, Inc. AMN has an Earnings ESP of +10.29% and a Zacks Rank of #2 (Buy). The company is slated to release fourth quarter and full-year 2021 results on Feb 17. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare’s long-term earnings growth rate is estimated at 16.2%. AMN’s earnings yield of 6.3% compares favorably with the industry’s 0.7%.

Allscripts Healthcare Solutions, Inc. MDRX has an Earnings ESP of +5.38% and a Zacks Rank of #2. Allscripts will release fourth quarter and full-year 2021 results on Feb 24.

Allscripts’ long-term earnings growth rate is estimated at 11.1%. MDRX’s earnings yield of 4.9% compares favorably with the industry’s (4.9%).

Henry Schein, Inc. HSIC has an Earnings ESP of +0.83% and a Zacks Rank of #2. The company will report fourth quarter and full-year 2021 results on Feb 15.

Henry Schein’s long-term earnings growth rate is estimated at 11.8%. HSIC’s earnings yield of 6.1% compares favorably with the industry’s 4.1%.


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