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Here's Why You Should Hold on to LabCorp (LH) Stock Now
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Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp is well poised for growth backed by continued growth in the Covance Drug Development business and recovery in its base business. The impressive second-quarter 2021 results and raised 2021 outlook are encouraging. However, foreign currency fluctuations and stiff competition are concerning.
Over the past year, the Zacks Rank #3 (Hold) stock has surged 71% compared with the industry’s 30.6% growth and the S&P 500’s 30.2% rise.
The renowned healthcare diagnostics company, offering comprehensive clinical laboratory services and end-to-end drug development support provider, has a market capitalization of $29.05 billion. The company projects 10.6% growth for the next five years and expects to maintain strong segmental performance. The company surpassed estimates in the trailing four quarters, the average surprise being 29.73%.
Riding on the company’s current business growth and bullish near-term prospects, this stock is worth holding on to, for now.
Key Growth Drivers
Impressive Q2 Results: We are optimistic about LabCorp’s second-quarter 2021 performance. The company’s figures improved on a year-over-year basis as well. The trailing 12-month book-to-bill remained strong at 1.41 for Drug Development, driven by patients and providers returning to routine healthcare check-ups and pharmaceutical clients resuming their important research activities at a faster-than-expected pace. To support the CDC in tracking and monitoring the delta and other variants, the company recently announced an extension to its contract to provide genetic sequencing from positive PCR test samples.
Base Business Picking Up Fast: In the second quarter of 2021, LabCorp’s organic base business grew 51% and 32% for Diagnostics and Drug Development, respectively. Within Diagnostics, relative to the second quarter of 2019, the compound annual growth rate for base business revenues was 4.5%, primarily driven by organic growth. Within Drug Development, relative to the second quarter of 2019, the compound annual growth rate for base business revenues was approximately 15%, primarily buoyed by organic growth.
Image Source: Zacks Investment Research
Raised 2021 Guidance: We are upbeat about LabCorp’s raised 2021 guidance taking into account the fast-recovering base business. Total LabCorp Enterprise revenues are expected to grow in the range of 6.5-9% (earlier expectation was 2-6% growth). This includes base business growth in the range of 17-19% (earlier, growth of 13.5-16%). Meanwhile, COVID-19 testing revenues are expected to decline in the range of 33-35% (previously, down 35-50%).
Total Diagnostics revenues are likely to drop 1% to up 2% (earlier expectation was flat to 5% decline). Total Drug Development revenues are expected to rise 17% to 19% (12% to 14% growth expected earlier) from 2020.
Downsides
On the flip side, there are some factors that have been deterring the stock’s rally of late.
Currency Fluctuations: With LabCorp deriving a huge share of its revenues from international markets, it is highly exposed to currency fluctuations. Unfavorable currency movements have been a major dampener over the last few quarters, as is the case for other important MedTech players.
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 to LabCorp’s 10% share.
Estimate Trends
LabCorp is witnessing a positive estimate revision trend for the current year. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 3.7% north to $23.54.
The Zacks Consensus Estimate for 2021 revenues is pegged at $14.94 billion, suggesting 6.9% growth from the year-ago reported number.
Image: Bigstock
Here's Why You Should Hold on to LabCorp (LH) Stock Now
Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp is well poised for growth backed by continued growth in the Covance Drug Development business and recovery in its base business. The impressive second-quarter 2021 results and raised 2021 outlook are encouraging. However, foreign currency fluctuations and stiff competition are concerning.
Over the past year, the Zacks Rank #3 (Hold) stock has surged 71% compared with the industry’s 30.6% growth and the S&P 500’s 30.2% rise.
The renowned healthcare diagnostics company, offering comprehensive clinical laboratory services and end-to-end drug development support provider, has a market capitalization of $29.05 billion. The company projects 10.6% growth for the next five years and expects to maintain strong segmental performance. The company surpassed estimates in the trailing four quarters, the average surprise being 29.73%.
Riding on the company’s current business growth and bullish near-term prospects, this stock is worth holding on to, for now.
Key Growth Drivers
Impressive Q2 Results: We are optimistic about LabCorp’s second-quarter 2021 performance. The company’s figures improved on a year-over-year basis as well. The trailing 12-month book-to-bill remained strong at 1.41 for Drug Development, driven by patients and providers returning to routine healthcare check-ups and pharmaceutical clients resuming their important research activities at a faster-than-expected pace. To support the CDC in tracking and monitoring the delta and other variants, the company recently announced an extension to its contract to provide genetic sequencing from positive PCR test samples.
Base Business Picking Up Fast: In the second quarter of 2021, LabCorp’s organic base business grew 51% and 32% for Diagnostics and Drug Development, respectively. Within Diagnostics, relative to the second quarter of 2019, the compound annual growth rate for base business revenues was 4.5%, primarily driven by organic growth. Within Drug Development, relative to the second quarter of 2019, the compound annual growth rate for base business revenues was approximately 15%, primarily buoyed by organic growth.
Raised 2021 Guidance: We are upbeat about LabCorp’s raised 2021 guidance taking into account the fast-recovering base business. Total LabCorp Enterprise revenues are expected to grow in the range of 6.5-9% (earlier expectation was 2-6% growth). This includes base business growth in the range of 17-19% (earlier, growth of 13.5-16%). Meanwhile, COVID-19 testing revenues are expected to decline in the range of 33-35% (previously, down 35-50%).
Total Diagnostics revenues are likely to drop 1% to up 2% (earlier expectation was flat to 5% decline). Total Drug Development revenues are expected to rise 17% to 19% (12% to 14% growth expected earlier) from 2020.
Downsides
On the flip side, there are some factors that have been deterring the stock’s rally of late.
Currency Fluctuations: With LabCorp deriving a huge share of its revenues from international markets, it is highly exposed to currency fluctuations. Unfavorable currency movements have been a major dampener over the last few quarters, as is the case for other important MedTech players.
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 to LabCorp’s 10% share.
Estimate Trends
LabCorp is witnessing a positive estimate revision trend for the current year. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 3.7% north to $23.54.
The Zacks Consensus Estimate for 2021 revenues is pegged at $14.94 billion, suggesting 6.9% growth from the year-ago reported number.
Key Picks
A few better-ranked stocks from the broader medical space are Envista Holdings Corporation (NVST - Free Report) , BellRing Brands, Inc. (BRBR - Free Report) and Henry Schein, Inc. (HSIC - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.
Envista Holdings has an estimated long-term earnings growth rate of 27%.
BellRing Brands has an estimated long-term earnings growth rate of 29%.
Henry Schein has a projected long-term earnings growth rate of 14%.