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LabCorp Slips to Sell

Zacks Equity Research

On Dec 21, Zacks Investment Research downgraded Laboratory Corporation of America Holdings (LH) to a Zacks Rank #4 (Sell).

Why the Downgrade?

Shares of LabCorp slid more than 12% to reach $88.25 on Dec 11, immediately after the company’s announcement of a bleak prelim 2014 outlook. This downtrend still continues and the stock has lost over 9% in the past one-month time frame.

For 2014, the company expects to post adjusted earnings per share (EPS) excluding amortization of $6.50, 16% below the Zacks Consensus Estimate of $7.56 a share. The projection does not take into account the positive impact of any share repurchase activity for 2014.

Keeping in mind the challenging operating environment, the company anticipates feeble revenue growth (of mere 2%) in the upcoming fiscal. The current Zacks Consensus Estimate for revenues of $5,939 million also remains ahead of the company’s expectation.

The current economic uncertainty continues to adversely affect LabCorp. The company is currently plagued by several issues like a utilization weakness and continued increases in Americans with high deductible and high co-insurance plans.

Moreover, ongoing government payment and reimbursement issues along with uncertainty related to the implementation of the Affordable Care Act are other looming headwinds. We note that lower healthcare utilization and Medicare payment reductions have affected LabCorp’s peer Quest Diagnostics’ (DGX) past performances as well.

Estimate Revisions

The Zacks Consensus Estimate for the fourth quarter of 2013 has declined 1.8% (2 cents) to $1.12 over the last 60 days.

The Zacks Consensus Estimate for full year 2013 decreased 0.5% (2 cents) to $3.81 per share over the last 60 days.

Other Stocks to Consider

Better-ranked stocks in the technology sector include McKesson Corporation (MCK) and Align Technology Inc. (ALGN). While McKesson carries a Zacks Rank #1 (Strong Buy), Align holds a Zacks Rank #2 (Buy).

Read the Full Research Report on DGX
Read the Full Research Report on ALGN
Read the Full Research Report on MCK
Read the Full Research Report on LH

Zacks Investment Research