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LabCorp (LH) Oncology Arm Gains Traction, Margin Pressure Stays
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LabCorp’s (LH - Free Report) continued efforts to expand to high-growth opportunity areas and net savings from the ongoing LaunchPad initiative buoy optimism. Yet, the current economic uncertainty, along with a challenging volume environment and severe FX headwinds, is a concern. The stock currently carries a Zacks Rank #3 (Hold).
In the third quarter of 2022, LabCorp Diagnostics performed well with Base Business revenue growth of 3.7% year over year and a 4% CAGR versus 2019. With Ascension being organic in the upcoming quarter, the company expects full-year revenue growth of 6% to 7%.
Drug Development Base Business fundamentals remained strong in Q3. The company expects a full-year CAGR of almost 8% from 2019. Further, LabCorp is accelerating the planned spin-off of its Clinical Development business (announced in July). The company noted that it is managing inflationary headwinds and labor constraints through its LaunchPad initiatives.
In terms of portfolio enhancement, the company formed a strategic partnership with MD Anderson Cancer Center Foundation in Spain to increase access to early-phase oncology clinical trials. The company has also entered into a collaboration with Becton, Dickinson and Company to help match patients with critical and potentially life-changing treatments for cancer and other diseases. The company has also seen growing demand for its at-home testing and collection options through Labcorp OnDemand.
In Oncology, LabCorp is benefiting from Personal Genome Diagnostics, an omni portfolio that includes advanced liquid biopsy, tissue-based diagnostics and kitting solutions. The company currently has the broadest portfolio and capabilities in oncology diagnostics.
On the flip side, Over the past year, LabCorp has underperformed its industry. Shares of LabCorp have declined 16.6% compared with the industry’s 6.3% decline.
LabCorp’s revenues for the third quarter lagged the Zacks Consensus Estimate and fell year over year. The decline in revenues can be attributed to a 10.7% fall in organic revenues and a 1.3% negative impact from foreign currency translation. The reduced sales growth across the company’s Diagnostics and Covance Drug Development operating segments on a reported basis raises apprehension.
The ongoing decline in COVID-19 Testing sales is discouraging too. Further, the significant plunge in EPS is worrisome. The persistent inflationary pressure and the ongoing Ukraine/Russia crisis continue to impact business performance.
As a result of escalating costs, gross margin contracted 472 basis points (bps) to 29.4% in the third quarter. Adjusted operating income marked a 36.5% plunge from the year-ago period. Meanwhile, the adjusted operating margin declined 606 bps from the year-ago quarter to 15.2%. This decline in adjusted operating income and margin is primarily attributable to a reduction in COVID-19 testing, higher personnel expenses and other inflationary costs during the quarter under review.
Key Picks
Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , Boston Scientific Corporation (BSX - Free Report) and Merit Medical Systems, Inc. (MMSI - Free Report) .
AMN Healthcare, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has lost 10.6% compared with the industry’s 30.3% decline in the past year.
Boston Scientific, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.3%. BSX’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average beat being 1.9%.
Boston Scientific has gained 6.8% against the industry’s 42.6% decline over the past year.
Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average beat being 25.4%.
Merit Medical has gained 13.7% against the industry’s 8.7% decline over the past year.
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LabCorp (LH) Oncology Arm Gains Traction, Margin Pressure Stays
LabCorp’s (LH - Free Report) continued efforts to expand to high-growth opportunity areas and net savings from the ongoing LaunchPad initiative buoy optimism. Yet, the current economic uncertainty, along with a challenging volume environment and severe FX headwinds, is a concern. The stock currently carries a Zacks Rank #3 (Hold).
In the third quarter of 2022, LabCorp Diagnostics performed well with Base Business revenue growth of 3.7% year over year and a 4% CAGR versus 2019. With Ascension being organic in the upcoming quarter, the company expects full-year revenue growth of 6% to 7%.
Drug Development Base Business fundamentals remained strong in Q3. The company expects a full-year CAGR of almost 8% from 2019. Further, LabCorp is accelerating the planned spin-off of its Clinical Development business (announced in July). The company noted that it is managing inflationary headwinds and labor constraints through its LaunchPad initiatives.
Laboratory Corporation of America Holdings Price
Laboratory Corporation of America Holdings price | Laboratory Corporation of America Holdings Quote
In terms of portfolio enhancement, the company formed a strategic partnership with MD Anderson Cancer Center Foundation in Spain to increase access to early-phase oncology clinical trials. The company has also entered into a collaboration with Becton, Dickinson and Company to help match patients with critical and potentially life-changing treatments for cancer and other diseases. The company has also seen growing demand for its at-home testing and collection options through Labcorp OnDemand.
In Oncology, LabCorp is benefiting from Personal Genome Diagnostics, an omni portfolio that includes advanced liquid biopsy, tissue-based diagnostics and kitting solutions. The company currently has the broadest portfolio and capabilities in oncology diagnostics.
On the flip side, Over the past year, LabCorp has underperformed its industry. Shares of LabCorp have declined 16.6% compared with the industry’s 6.3% decline.
LabCorp’s revenues for the third quarter lagged the Zacks Consensus Estimate and fell year over year. The decline in revenues can be attributed to a 10.7% fall in organic revenues and a 1.3% negative impact from foreign currency translation. The reduced sales growth across the company’s Diagnostics and Covance Drug Development operating segments on a reported basis raises apprehension.
The ongoing decline in COVID-19 Testing sales is discouraging too. Further, the significant plunge in EPS is worrisome. The persistent inflationary pressure and the ongoing Ukraine/Russia crisis continue to impact business performance.
As a result of escalating costs, gross margin contracted 472 basis points (bps) to 29.4% in the third quarter. Adjusted operating income marked a 36.5% plunge from the year-ago period. Meanwhile, the adjusted operating margin declined 606 bps from the year-ago quarter to 15.2%. This decline in adjusted operating income and margin is primarily attributable to a reduction in COVID-19 testing, higher personnel expenses and other inflationary costs during the quarter under review.
Key Picks
Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , Boston Scientific Corporation (BSX - Free Report) and Merit Medical Systems, Inc. (MMSI - Free Report) .
AMN Healthcare, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has lost 10.6% compared with the industry’s 30.3% decline in the past year.
Boston Scientific, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.3%. BSX’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average beat being 1.9%.
Boston Scientific has gained 6.8% against the industry’s 42.6% decline over the past year.
Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average beat being 25.4%.
Merit Medical has gained 13.7% against the industry’s 8.7% decline over the past year.