On Dec 27, Zacks Investment Research upgraded Laboratory Corporation of America Holdings (LH) to a Zacks Rank #3 (Hold).
Why the Upgrade?
LabCorp’s prelim 2014 earnings projection, declared on Dec 11, disappointed majority of the investors, leading to significant loss in share price in the last two weeks. 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.
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 stands at $5,939 million, ahead of the company’s expectation.
With the stock price at its current low, we do not expect any further downward rally as the impact of the disappointing outlook has already taken shape. Moreover, we are upbeat about the company’s focus on portfolio expansion to drive the top line. The company is banking more on the high-margin esoteric testing business, which is expected to contribute 45% of total sales in the next 3–5 years.
In addition, the acquisition pipeline and partnerships remain attractive. The company’s recent acquisition of Medtox Scientific will help strengthen the company’s foothold in specialized toxicology testing.Early this year, the company announced that Bristol-Myers Squibb (BMY) entered into a 5-year agreement to select LabCorp Clinical Trials as a preferred provider for full-service global central laboratory services and biomarker testing.
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