Is It the Right Time to Hold Labcorp (LH) in Your Portfolio?

Zacks Equity Research
·5-min read

Laboratory Corporation of America Holdings LH, or Labcorp’s, focused efforts in the high-growth areas position it for strong growth in the upcoming quarters. The company has an extensive set of acquisition opportunities in hospitals and local laboratories, which is also encouraging. Moreover, the LaunchPad initiative is on track to achieve its targeted savings.

Meanwhile, the brunt of macroeconomic impacts on Labcorp’s operations remains a concern. Unfavorable solvency also adds to the worry.

In the past year, this Zacks Rank #3 (Hold) stock has declined 2.8% compared with the 2.3% fall of the industry and a 23.6% increase of the S&P 500 composite.

The renowned healthcare diagnostics company has a market capitalization of $17.61 billion. Labcorp has an earnings yield of 7.31% compared to the industry’s 5.48%. In the trailing four quarters, the company delivered an average earnings surprise of 1.38%.

Let’s delve deeper.

Factors at Play

Targeted Development in High-Growth Areas: Labcorp is focusing more on key growth areas such as oncology, women’s health, autoimmune disease and neurology. By developing, licensing and ultimately scaling specialty testing, including companion diagnostics, the company is setting the stage for significant near-term growth. Additionally, Labcorp is well-placed for long-term success in Cell & Gene Therapy, expanding into the consumer market and international growth through the specialty testing and biopharma business.

The launch of the pTau217 blood-based biomarker as a standalone test marked a significant advancement in the company’s Alzheimer's testing portfolio, which also includes the ATN profile blood-based test. Further, the company’s newest Weight Loss Management offering demonstrates its leadership in testing for cardiometabolic conditions and extensive experience in supporting individuals and physicians with weight management.

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Labcorp also partnered with Thermo Fisher Scientific to launch a new FDA-cleared test for risk assessment and prognosis of severe preeclampsia in pregnant women. The company’s impactful digital solutions are also improving consumer engagement.

Strategic Partnerships to Drive Growth: Labcorp’s rich pipeline of potential hospital and local laboratory acquisitions presents ample opportunities for its growth. During March 2024, the company closed three transactions, including health system agreements with Baystate Health in Massachusetts, Providence’s outreach laboratory business in Northern California and Orange County, and also acquired a regional lab in California.

It also agreed to acquire select assets from BioReference's health diagnostics business to enhance clinical laboratory services, particularly in clinical diagnostics and reproductive women's health. Additionally, Labcorp teamed up with Hawthorne Effect to boost decentralized clinical trial capabilities for pharmaceutical, biotech and medical device sponsors. It acquired select assets from Legacy Health and expanded in Eastern Massachusetts through a strategic partnership with Tufts Medicine.

LaunchPad Initiative Right on Track:The company’s LaunchPad business process improvement initiative is on track to deliver $100 million to $125 million of savings this year, consistent with its three-year target of $350 million by the 2024 end. The benefits will be driven by rationalizing the geographic location of facilities and talent, leveraging technological advancements and structural enhancements, integrating acquisitions and re-engineering the company’s systems and processes.

Downsides

Macroeconomic Constraints and Supply Challenges: Labcorp’s operations are subject to the effects of macroeconomic factors in the United States and globally. This includes significant economic fluctuations as a result of the disturbed geopolitical situation and inflation, all leading to an increase in the costs of goods and services.

Throughout most of the months in 2023, Labcorp’s Early Development Research Laboratories business grappled with non-human primate (NHP)-related supply-chain issues. The company had experienced higher-than-normal cancellations and lower orders, primarily due to small biotech funding.

Debt Profile: At the end of the first quarter of 2024, Labcorp had $2.04 billion in short-term borrowings and the current portion of the long-term debt. This compares to the corresponding cash and cash equivalents of $99.3 million, raising concerns about the company’s ability to meet its immediate debt obligations.

Estimate Trend

In the past 30 days, the Zacks Consensus Estimate for Labcorp’s 2024 earnings has remained constant at $14.87.

The Zacks Consensus Estimate for 2024 revenues is pegged at $12.83 billion, which suggests a 0.6% drop from the 2023 comparable figure.

Key Picks

Some better-ranked stocks in the broader medical space are Hims & Hers Health HIMS, Medpace MEDP and ResMed RMD.

Hims & Hers Health’s earnings are expected to surge 272.7% in 2024 compared with the industry’s 16.6%. HIMS’ earnings surpassed estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 79.2%. Its shares have surged 135.1% against the industry’s 28.2% decline in the past year.

HIMS sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medpace, carrying a Zacks Rank #2 (Buy) at present, has an estimated 2024 earnings growth rate of 27.1% compared with the industry’s 12.7%. Shares of MEDP have rallied 70.4% compared with the industry’s 5.3% growth over the past year.

MEDP’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.8%. In the last reported quarter, it delivered an earnings surprise of 30.6%.

ResMed, also carrying a Zacks Rank #2 at present, has an estimated fiscal 2024 earnings growth rate of 19.6% compared with the industry’s 13.4%. Shares of RMD have dropped 12.9% compared with the industry’s 2.2% decline over the past year.

RMD’s earnings surpassed estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 2.8%. In the last reported quarter, it delivered an earnings surprise of 10.9%.

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Labcorp (LH) : Free Stock Analysis Report

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