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Surging Earnings Estimates Signal Upside for LabCorp (LH) Stock

Zacks Equity Research

Investors might want to bet on LabCorp (LH), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this medical laboratory operator, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- has this insight at its core.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For LabCorp, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $0.27 per share, which is a change of -90.78% from the year-ago reported number.

Over the last 30 days, three estimates have moved higher for LabCorp while one has gone lower. As a result, the Zacks Consensus Estimate has increased 344.19%.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $9 per share, representing a year-over-year change of -20.49%.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for LabCorp. Over the past month, four estimates have moved higher compared to one negative revision, helping the consensus estimate increase 18.07%.

Favorable Zacks Rank

Thanks to promising estimate revisions, LabCorp currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on LabCorp because of its solid estimate revisions, as evident from the stock's 12.3% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.

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