On Sep 30, we issued an updated research report on LabCorp (LH - Free Report) . The ongoing positive synergy from the Covance consolidation is a major plus. However, a challenging volume environment for testing laboratories and softness in utilization are headwinds for LabCorp.
Over the past year, shares of LabCorp have improved 11% compared with the industry’s 9.5% rise.
Despite the challenges associated with COVID-19, the company exited the second quarter of 2020 with better-than-expected results. Although diagnostic testing revenues declined on a year-over-year basis, there was a steady recovery in the Base Business during the quarter for both diagnostic and drug development. This could be attributed to the fact that people are gradually returning to their doctors for testing and clinical trials activity has resumed. COVID-19 related research too is progressing well. More encouragingly, in the month of June, volumes were up year over year and COVID-19-related testing more than offset the decline in the Base Business.
Within the Covance Drug Development business, the company reported a solid trailing 12-month book-to-bill ratio of 1.32. More encouragingly, backlog grew to $11.8 billion compared with $11.3 billion in the first quarter. In terms of COVID-19 testing updates, the company was the first commercial lab to launch the PCR tests in March. Since then, LabCorp has rapidly expanded both capacity and accessibility for testing.
However, LabCorp’s Diagnostics and Drug Development arms are experiencing the impact of coronavirus with clients postponing programs and lower demand for diagnostic testing. The increased testing performed by the company for COVID-19 did not nearly offset the decline in other testing.
Diagnostics revenues declined 3.9% year over year due to sluggish Base Business revenues on the impact of COVID-19 and continued price pressure from PAMA. This reduction in demand impacted testing volume broadly but the impact was more severe on routine procedures. It also impacted esoteric tests but to a lesser degree due to the critical and time sensitive nature of these tests. In the Drug Development business, revenues declined 2.9% affected by a 5.2% decline in organic revenues.
Due to the unpredictability regarding the duration and the impact of the COVID-19 pandemic, the company did not provide its 2020 guidance.
On the flip side, apart from a challenging volume environment for the testing laboratories, disposition of certain businesses and the implementation of the Protecting Access to Medicare Act (PAMA) dented growth. Moreover, an unfavorable currency movement is a lingering downside. The stock currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader medical space include QIAGEN N.V. (QGEN - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Globus Medical, Inc. (GMED - Free Report) .
QIAGEN’s long-term earnings growth rate is estimated at 22.3%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Thermo Fisher’s long-term earnings growth rate is estimated at 15.5%. It currently carries a Zacks Rank #2 (Buy).
Globus Medical’s long-term earnings growth rate is estimated at 13%. The company presently carries a Zacks Rank #2.
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