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LabCorp's (LH) Covance Arm Stays Robust Amid Procedure Delay

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Zacks Equity Research
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On Jan 4, we issued an updated research report on LabCorp LH. The ongoing synergy from the Covance consolidation is a major plus. However, a challenging volume environment for testing laboratories and softness in utilization are headwinds for LabCorp.

Over the past six months, shares of LabCorp have improved 17.6% compared with the industry's 16% rise.

LabCorp’s Diagnostics revenues in the third quarter of 2020 were significantly high on organic volume improvements as a result of growing demand for COVID-19 testing. Also, there was sequential recovery in base business with people resuming their routine preventive visits, actively caring for their chronic conditions and moving ahead with elective surgeries and other procedures. Based on the current improving state of business, the company has decided to return the CARES Act Provider Relief Fund payment.

Within the Covance Drug Development business, the company continued to see strong momentum. For the second consecutive quarter, LabCorp won a disproportionate share of COVID-19 vaccine and therapeutic studies. To date, it has won approximately 350 opportunities from small programs in the non-clinical business through late-stage clinical trials.

Laboratory Corporation of America Holdings Price

Laboratory Corporation of America Holdings Price
Laboratory Corporation of America Holdings Price

Laboratory Corporation of America Holdings price | Laboratory Corporation of America Holdings Quote

Apart from COVID-19 supports, the company also made significant strides in other businesses. In oncology, it received a significant award to be the partner of choice for late-stage oncology studies from a major pharmaceutical company. Further, it launched Resolution ctDx Lung, a new non-invasive liquid biopsy test for patients with non-small cell lung cancer. It also collaborated with Tempus to accelerate clinical trial patient participation.

However, LabCorp’s Diagnostics and Drug Development arms are experiencing the impact of coronavirus with clients postponing programs and lower demand for diagnostic testing. The increased testing performed by the company for COVID-19 did not nearly offset the decline in other testing.

Non-COVID procedural volume was down approximately 9% year over year due to sluggish Base Business revenues on the impact of COVID-19. Organic base business dropped 1.1% in the reported quarter, which includes the negative impact from PAMA of 0.7%.

Due to the unpredictability regarding the duration and the impact of the COVID-19 pandemic, the company could not provide its 2020 guidance.

Also, the disposition of certain businesses and the implementation of the Protecting Access to Medicare Act (PAMA) dented growth. Moreover, an unfavorable currency movement is a lingering downside. The stock currently carries a Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks from the broader medical space are Merit Medical Systems, Inc. MMSI, Stryker Corporation ( SYK and McKesson Corporation MCK, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Merit Medical has a projected long-term earnings growth rate of 12.6%.

Stryker has a projected long-term earnings growth rate of 9.6%.

McKesson has a projected long-term earnings growth rate of 6.6%.

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Stryker Corporation (SYK) : Free Stock Analysis Report
 
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