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LabCorp (LH) Covance Arms Shows Momentum Amid COVID-19 Woes

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On Dec 7, we issued an updated research report on LabCorp (LH - Free Report) . The ongoing 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.

Year to date, shares of LabCorp have improved 17.6% compared with the industry’s 16% rise.

LabCorp exited the third quarter of 2020 with better-than-expected earnings and revenues. Diagnostics revenues in the quarter were significantly high on organic volume improvements as a result of growing demand for COVID-19 testing. Also, there was sequential recovery in base business with people resuming their routine preventive visits, actively caring for their chronic conditions and moving ahead with elective surgeries and other procedures. Based on the current improving state of business, the company has decided to return the CARES Act Provider Relief Fund payment.

Within the Covance Drug Development business, the company continued to see strong momentum. For the second consecutive quarter, LabCorp won a disproportionate share of COVID-19 vaccine and therapeutic studies. To date, it has won approximately 350 opportunities from small programs in the non-clinical business through late-stage clinical trials.

Apart from COVID-19 supports, the company also made significant strides in other businesses. In oncology, it received a significant award to be the partner of choice for late-stage oncology studies from a major pharmaceutical company. Further, it launched Resolution ctDx Lung, a new non-invasive liquid biopsy test for patients with non-small cell lung cancer. It also collaborated with Tempus to accelerate clinical trial patient participation.

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.

Non-COVID procedural volume was down approximately 9% year over year due to sluggish Base Business revenues on the impact of COVID-19. Organic base business dropped 1.1% in the reported quarter, which includes the negative impact from PAMA of 0.7%.

Due to the unpredictability regarding the duration and the impact of the COVID-19 pandemic, the company could not provide its 2020 guidance.

Also, the 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).

Key Picks

Some better-ranked stocks from the broader medical space are Hologic, Inc. (HOLX - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and ResMed Inc. (RMD - Free Report) .

Hologic’s long-term earnings growth rate is estimated at 17.4%. The company presently 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 18%. It currently carries a Zacks Rank #2 (Buy).

ResMed’s long-term earnings growth rate is estimated at 14.5%. The company presently carries a Zacks Rank #2.

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