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Here's Why You Should Add LabCorp (LH) Stock to Your Portfolio
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Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp is gaining from strong demand for COVID-19 testing. The company’s base business is witnessing a rebound as well. The raised 2021 outlook is encouraging. However, foreign currency fluctuations and stiff competition are concerning.
Over the past year, the Zacks Rank #2 (Buy) stock has surged 57.7% compared with the industry’s 28.8% growth and the S&P 500’s 40% rise.
The renowned healthcare diagnostics company, offering comprehensive clinical laboratory services and end-to-end drug development support provider, has a market capitalization of $27.46 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 84.93%.
Key Growth Drivers
Progress With COVID-19 Tests: We are upbeat about LabCorp’s response toward combatting the pandemic. LabCorp was the first commercial lab to launch PCR testing on Mar 5, just after the FDA liberalized the rules around Emergency Use Authorization (EUA) for testing. Through 2020, the company developed six EUA COVID tests and performed approximately 35 million COVID tests in 2020. In January, as a major development, LabCorp has been awarded a contract from the Centers for Disease Control and Prevention (CDC) to provide genomic sequencing of samples of SARS-CoV-2. This sequencing will aid the CDC in its goal of conducting a large-scale longitudinal genomic survey of the virus using a random set of samples collected from across the United States.
Base Business Picking Up Fast: LabCorp’s improvement in base business amid post-pandemic recovery is encouraging. In the first quarter of 2021, LabCorp’s overall organic base business growth was 12.2%. Within Diagnostics, base business growth was 7.5% primarily driven by organic growth of 6.3%, which considered the negative impact of weather of approximately 2%. Relative to the first quarter of 2019, the compounded annual growth rate for the base business revenue was 2.7% on organic growth.
Image Source: Zacks Investment Research
Raised Guidance: The company has raised its 2021 guidance. Total Labcorp Enterprise revenues are expected to grow in the range of 2-6% (earlier expectation was down 1% to up 4.5%). This includes Base Business growth in the range of 13.5% to 16% (11% to 13.5%).
Total Diagnostics revenues are expected to decline in the range of 0% to 5% (earlier expectation was down 0.5% to 7.5%). Total Drug Development revenues are expected to rise 12% to 14% (8% to 10.5% expected growth) from 2020.
Downsides
Currency Fluctuations: With LabCorp deriving a huge share of its revenues internationally, 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. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 6.9% north to $22.90.
The Zacks Consensus Estimate for its second-quarter 2021 revenues is pegged at $3.58 billion, suggesting 29.5% growth from the year-ago reported number.
Image: Shutterstock
Here's Why You Should Add LabCorp (LH) Stock to Your Portfolio
Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp is gaining from strong demand for COVID-19 testing. The company’s base business is witnessing a rebound as well. The raised 2021 outlook is encouraging. However, foreign currency fluctuations and stiff competition are concerning.
Over the past year, the Zacks Rank #2 (Buy) stock has surged 57.7% compared with the industry’s 28.8% growth and the S&P 500’s 40% rise.
The renowned healthcare diagnostics company, offering comprehensive clinical laboratory services and end-to-end drug development support provider, has a market capitalization of $27.46 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 84.93%.
Key Growth Drivers
Progress With COVID-19 Tests: We are upbeat about LabCorp’s response toward combatting the pandemic. LabCorp was the first commercial lab to launch PCR testing on Mar 5, just after the FDA liberalized the rules around Emergency Use Authorization (EUA) for testing. Through 2020, the company developed six EUA COVID tests and performed approximately 35 million COVID tests in 2020. In January, as a major development, LabCorp has been awarded a contract from the Centers for Disease Control and Prevention (CDC) to provide genomic sequencing of samples of SARS-CoV-2. This sequencing will aid the CDC in its goal of conducting a large-scale longitudinal genomic survey of the virus using a random set of samples collected from across the United States.
Base Business Picking Up Fast: LabCorp’s improvement in base business amid post-pandemic recovery is encouraging. In the first quarter of 2021, LabCorp’s overall organic base business growth was 12.2%. Within Diagnostics, base business growth was 7.5% primarily driven by organic growth of 6.3%, which considered the negative impact of weather of approximately 2%. Relative to the first quarter of 2019, the compounded annual growth rate for the base business revenue was 2.7% on organic growth.
Raised Guidance: The company has raised its 2021 guidance. Total Labcorp Enterprise revenues are expected to grow in the range of 2-6% (earlier expectation was down 1% to up 4.5%). This includes Base Business growth in the range of 13.5% to 16% (11% to 13.5%).
Total Diagnostics revenues are expected to decline in the range of 0% to 5% (earlier expectation was down 0.5% to 7.5%). Total Drug Development revenues are expected to rise 12% to 14% (8% to 10.5% expected growth) from 2020.
Downsides
Currency Fluctuations: With LabCorp deriving a huge share of its revenues internationally, 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. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 6.9% north to $22.90.
The Zacks Consensus Estimate for its second-quarter 2021 revenues is pegged at $3.58 billion, suggesting 29.5% growth from the year-ago reported number.
Zacks Rank and Key Picks
A few similar-ranked stocks from the broader medical space are Envista Holdings Corporation (NVST - Free Report) , BellRing Brands, Inc. (BRBR - Free Report) and Phibro Animal Health Corporation (PAHC - 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 26%.
BellRing Brands has an estimated long-term earnings growth rate of 22%.
Phibro Animal Health has a projected long-term earnings growth rate of 11%.