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Here's Why You Should Add LabCorp (LH) to Your Portfolio Now
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Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp is well-poised for growth in the coming quarters, backed by consistent recovery across its businesses in the third quarter of 2021. Further, its targeted development in high-growth areas is progressing well on recent acquisitions. However, foreign currency fluctuations and stiff competition are concerns.
Over the past year, the Zacks Rank #2 (Buy) stock has surged 46.1% in the past year compared with the industry’s 14.3% growth and the S&P 500’s 25.9% rise.
The renowned healthcare diagnostics company, offering comprehensive clinical laboratory services and end-to-end drug development support provider, has a market capitalization of $28.44 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 25.7%.
Key Growth Catalysts
Impressive Q3 Results: LabCorp exited the third quarter of 2021 with better-than-expected earnings and revenues. The company registered consistent recovery across both of its businesses. In Diagnostics, the company experienced broad geographic recovery in Base Business and across the company’s testing portfolio. Esoteric and routine testing demonstrated solid year-over-year growth. In terms of COVID-19 response, in the third quarter, LabCorp experienced greater-than-anticipated COVID testing volumes.
Targeted Development in High-Growth Area: In its efforts to identify and expand in high-growth opportunity areas, LabCorp recently acquired an autoimmune business unit from Myriad Genetics, including Vectra, rheumatoid arthritis assay. This is expected to strengthen the company’s position in rheumatoid arthritis, which the CDC predicts will impact roughly 25% of adults in the United States by 2040. Additionally, in women’s health, LabCorp acquired Ovia Health in August. The transaction extends Labcorp’s position as a go-to source for women’s health insights. In another high-growth area, Oncology, LabCorp has taken over OmniSeq.
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Raised Guidance: The company raised its 2021 guidance. Total LabCorp Enterprise revenues are expected to grow in the range of 13-14% (earlier expectation was 6.5-9% growth). This includes Base Business growth in the range of 18.5-19.5% (earlier 17-19%). Total Diagnostics revenues are expected to grow 8-10% (earlier expectation was down 1% to up 2%). Total Drug Development revenues are expected to rise 19.5-20.5% (17-19% growth expected earlier) from 2020.
Downsides
Exposed to Currency Headwind: 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 with other important MedTech players too.
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 14.1% north to $26.85.
The Zacks Consensus Estimate for 2021 revenues is pegged at $15.91 billion, suggesting 13.8% growth from the year-ago reported number.
Thermo Fisher Scientific reported third-quarter 2021 adjusted earnings per share (EPS) of $5.76, which surpassed the Zacks Consensus Estimate by 23.3%. Revenues of $9.33 billion outpaced the Zacks Consensus Estimate by 12%.
Thermo Fisher has an estimated long-term growth rate of 14%. TMO surpassed estimates in the trailing four quarters, the average surprise being 9.02%.
National Vision has a long-term earnings growth rate of 23%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 113.1%.
National Vision has outperformed the industry it belongs to in the past year. EYE has gained 15.9% versus the industry’s 1.7% growth.
Medpace reported third-quarter 2021 adjusted EPS of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%.
Medpace has an estimated long-term growth rate of 16.4%. MEDP surpassed estimates in the trailing four quarters, the average surprise being 11.9%.
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Here's Why You Should Add LabCorp (LH) to Your Portfolio Now
Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp is well-poised for growth in the coming quarters, backed by consistent recovery across its businesses in the third quarter of 2021. Further, its targeted development in high-growth areas is progressing well on recent acquisitions. However, foreign currency fluctuations and stiff competition are concerns.
Over the past year, the Zacks Rank #2 (Buy) stock has surged 46.1% in the past year compared with the industry’s 14.3% growth and the S&P 500’s 25.9% rise.
The renowned healthcare diagnostics company, offering comprehensive clinical laboratory services and end-to-end drug development support provider, has a market capitalization of $28.44 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 25.7%.
Key Growth Catalysts
Impressive Q3 Results: LabCorp exited the third quarter of 2021 with better-than-expected earnings and revenues. The company registered consistent recovery across both of its businesses. In Diagnostics, the company experienced broad geographic recovery in Base Business and across the company’s testing portfolio. Esoteric and routine testing demonstrated solid year-over-year growth. In terms of COVID-19 response, in the third quarter, LabCorp experienced greater-than-anticipated COVID testing volumes.
Targeted Development in High-Growth Area: In its efforts to identify and expand in high-growth opportunity areas, LabCorp recently acquired an autoimmune business unit from Myriad Genetics, including Vectra, rheumatoid arthritis assay. This is expected to strengthen the company’s position in rheumatoid arthritis, which the CDC predicts will impact roughly 25% of adults in the United States by 2040. Additionally, in women’s health, LabCorp acquired Ovia Health in August. The transaction extends Labcorp’s position as a go-to source for women’s health insights. In another high-growth area, Oncology, LabCorp has taken over OmniSeq.
Raised Guidance: The company raised its 2021 guidance. Total LabCorp Enterprise revenues are expected to grow in the range of 13-14% (earlier expectation was 6.5-9% growth). This includes Base Business growth in the range of 18.5-19.5% (earlier 17-19%). Total Diagnostics revenues are expected to grow 8-10% (earlier expectation was down 1% to up 2%). Total Drug Development revenues are expected to rise 19.5-20.5% (17-19% growth expected earlier) from 2020.
Downsides
Exposed to Currency Headwind: 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 with other important MedTech players too.
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 14.1% north to $26.85.
The Zacks Consensus Estimate for 2021 revenues is pegged at $15.91 billion, suggesting 13.8% growth from the year-ago reported number.
Other Key Picks
A few other similar-ranked stocks from the broader medical space are Thermo Fisher Scientific Inc. (TMO - Free Report) , National Vision Holdings, Inc. (EYE - Free Report) and Medpace Holdings, Inc. (MEDP - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Thermo Fisher Scientific reported third-quarter 2021 adjusted earnings per share (EPS) of $5.76, which surpassed the Zacks Consensus Estimate by 23.3%. Revenues of $9.33 billion outpaced the Zacks Consensus Estimate by 12%.
Thermo Fisher has an estimated long-term growth rate of 14%. TMO surpassed estimates in the trailing four quarters, the average surprise being 9.02%.
National Vision has a long-term earnings growth rate of 23%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 113.1%.
National Vision has outperformed the industry it belongs to in the past year. EYE has gained 15.9% versus the industry’s 1.7% growth.
Medpace reported third-quarter 2021 adjusted EPS of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%.
Medpace has an estimated long-term growth rate of 16.4%. MEDP surpassed estimates in the trailing four quarters, the average surprise being 11.9%.