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Here's Why Investors Should Retain LabCorp (LH) Stock for Now

Laboratory Corporation of America Holdings, or LabCorp LH, is gaining from strategic partnerships. The company’s upbeat guidance instils optimism. However, stiff competition and foreign-exchange headwinds do not bode well.

In the past year, the Zacks Rank #3 (Hold) stock has lost 4.3% compared with a 15.4% rise of the industry and an 5.4% rise of S&P 500.

The renowned healthcare diagnostics company has a market capitalization of $19.75 billion. The company’s earnings surpassed the Zacks Consensus Estimate in two of the trailing four quarters and missed in two, delivering a surprise of 0.82%, on average.

Let’s delve deeper.

Factors At Play

Q1 Upsides:  Laborp ended the first quarter of 2023 with better-than-expected revenues. The company continued integrating the Ascension health system laboratories during the first quarter of 2023. Its Diagnostics Base Business revenues increased year over year in the quarter, driven by routine and esoteric testing and a benefit from hospital deals. The company continues to expand its digital health platform Labcorp OnDemand with the launch of three new tests during the reported quarter. The company is progressing well with its planned spin-off of the Clinical Development business, which is expected to be completed in mid-2023, subject to the satisfaction of certain customary conditions. Per the first-quarter update, the company’s LaunchPad initiative continues to be on track to deliver $350 million in savings over the three-year period ending 2024.

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Strategic Partnerships to Drive Growth: LabCorp’s strategic collaborations with a range of local and regional health systems have enhanced services for patients and providers. The Ascension health system laboratories and other deals including company’s strategic relationship with RWJ Barnabus Health are strong proof points of the LabCorp’s ability to generate growth through future healthcare system partnerships.

Zacks Investment Research
Zacks Investment Research

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In May 2023, LabbCorp and the Conference of National Black Churches (CNBC) collaborated to address the health equity gaps in colorectal cancer screening. To raise awareness and improve access to colorectal cancer screening tests, the Conference of National Black Churches will disperse more than 3,000 colorectal screening test kits in urban and rural areas, including Atlanta, Dallas, Memphis, Washington, D.C., New Haven, Los Angeles and Richmond.

Upbeat Guidance: Total LabCorp Enterprise revenues (net of intersegment transaction eliminations, including Drug Development COVID-19 testing revenues) are expected to grow in the range of 1.5-4%. Base Business growth is expected in the range of 9.5-11%

Total Diagnostics revenues are expected to be down 0.5% to up 2%. Total Drug Development revenues are now expected to rise in the range of 3.5-5.5% in 2023.The Zacks Consensus Estimate for full-year revenues is pegged at $15.18 billion.

The company expects full-year adjusted EPS in the band of $16.25-$17.75 (previous range was 16-18%). The Zacks Consensus Estimate for the metric is pegged at $17.18.

Downsides

Exposed to Currency Headwind: With LabCorp deriving a huge share of its revenues internationally, it remains highly exposed to currency fluctuations. Unfavorable currency movements have been a major dampener over the last few quarters, as in the case of other important MedTech players too. Revenues in the fourth quarter of 2022 registered a 1.3% decline due to adverse foreign-currency translation.

Competitive Landscape: LabCorp faces intense competition from its major competitor, Quest Diagnostics, and other commercial laboratories and hospitals. In a $55-billion U.S. lab market, hospitals control an estimated 55% of the diagnostic test market compared with LabCorp’s 10% share.

Estimate Trend

In the past 90 days, the Zacks Consensus Estimate for LabCorp’s 2023 earnings has moved down by 4.9% to $16.83 per share.

The Zacks Consensus Estimate for 2023 revenues is pegged at $15.21 billion, suggesting a 2.2% rise from the 2022 comparable figure.

Key Picks

Some better-ranked stocks in the broader medical space are AmerisourceBergen Corporation ABC, Merit Medical Systems, Inc. MMSI and Cardinal Health, Inc. CAH.

AmerisourceBergen, carrying a Zacks Rank of 2, reported second-quarter fiscal 2023 adjusted EPS of $3.50, beating the Zacks Consensus Estimate by 6.4%. Revenues of $63.46 billion outpaced the consensus mark by 4.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AmerisourceBergen has a long-term estimated growth rate of 8.9%. ABC’s earnings surpassed estimates in all the trailing four quarters, the average being 3.1%.

Merit Medical reported a first-quarter 2023 adjusted EPS of 64 cents, beating the Zacks Consensus Estimate by 16.4%. Revenues of $297.6 million surpassed the Zacks Consensus Estimate by 5.9%. It currently carries a Zacks Rank #2.

Merit Medical has a long-term estimated growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.2%.

Cardinal Health reported a third-quarter fiscal 2023 adjusted EPS of $1.74, beating the Zacks Consensus Estimate by 17.6%. Revenues of $50.49 billion surpassed the Zacks Consensus Estimate by 1.7%. It currently carries a Zacks Rank #2.

Cardinal Health has a long-term estimated growth rate of 12.4%. CAH’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 12.3%.

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Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report

Cardinal Health, Inc. (CAH) : Free Stock Analysis Report

AmerisourceBergen Corporation (ABC) : Free Stock Analysis Report

Merit Medical Systems, Inc. (MMSI) : Free Stock Analysis Report

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