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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 has been gaining from increased COVID-19 testing demand. Further, the company’s targeted development in high-growth areas looks encouraging. However, foreign currency fluctuations and stiff competition are concerns.
Over the past year, the Zacks Rank #1 (Strong Buy) stock has surged 20.5% in the past year compared with the industry’s 1.7% growth and the S&P 500’s 15.9% rise.
The renowned healthcare diagnostics company, offering comprehensive clinical laboratory services and end-to-end drug development support provider, has a market capitalization of $25.98 billion. The company projects 10.6% growth for the next five years. The company surpassed estimates in the trailing four quarters, the average surprise being 25.73%.
Key Growth Catalysts
Pandemic Support-Related Progress: In terms of COVID-19 testing, LabCorp experienced greater-than-anticipated COVID-19 testing volumes in the third quarter. PCR testing volume averaged 85,000 per day in the quarter, up from 54,000 per day in the sequentially last quarter. LabCorp averaged 114,000 tests per day in September, with volumes declining week over week since that time. The company noted that it will continue to maintain high capacity levels to be prepared for potential future scenarios. In terms of new launches, in the third quarter, the company received EUA for a combined COVID-19 and flu-at-home collection kit.
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 Centers for Disease Control and Prevention predict will impact roughly 25% of adults in the United States by 2040. Additionally, in women’s health, another focus area, LabCorp acquired Ovia Health in August, a digital health platform to seek information and support with family planning, pregnancy, and parenting. The transaction extends Labcorp’s position as a go-to source for women’s health insights.
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Covance Drug Development Growth Continues: This business is benefitting from collaborations with leading pharmaceutical and biotechnology companies with whom it started to work on potential antivirals, treatments and vaccines. In the third quarter, revenues improved 17.5% year over year within this business, riding on organic Base Business growth of 19.9%, acquisitions growth of 0.4%, and favorable foreign currency translation of 100 basis points. Drug Development Base business benefited from broad-based growth across all businesses, including COVID-19 vaccine and therapeutic work.
Downsides
Exposed to Currency Headwind: With LabCorp deriving a huge share of its revenues internationally, it remains 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 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 14.2% north to $27.70.
The Zacks Consensus Estimate for its 2021 revenues is pegged at $16.00 billion, suggesting 14.5% growth from the year-ago reported number.
Zacks Rank and Other Key Picks
A few other top-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN - Free Report) , Henry Schein, Inc.(HSIC - Free Report) and West Pharmaceutical Services, Inc. (WST - Free Report) .
AMN Healthcare, carrying a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average. You can see the complete list of today's Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry over the past year. AMN has gained 23.8% versus the 62% industry decline.
Henry Schein has an estimated long-term growth rate of 11.8%. HSIC’s earnings surpassed estimates in the trailing four quarters, the average surprise being 21.86%. It currently carries a Zacks Rank #2 (Buy).
Henry Schein has gained 6.1% compared with the industry’s 1.7% rise over the past year.
West Pharmaceutical has a long-term earnings growth rate of 27.6%. West Pharmaceutical surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 29.4%.
West Pharmaceutical has outperformed its industry over the past year. WST currently carries a Zacks Rank of 2.
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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 has been gaining from increased COVID-19 testing demand. Further, the company’s targeted development in high-growth areas looks encouraging. However, foreign currency fluctuations and stiff competition are concerns.
Over the past year, the Zacks Rank #1 (Strong Buy) stock has surged 20.5% in the past year compared with the industry’s 1.7% growth and the S&P 500’s 15.9% rise.
The renowned healthcare diagnostics company, offering comprehensive clinical laboratory services and end-to-end drug development support provider, has a market capitalization of $25.98 billion. The company projects 10.6% growth for the next five years. The company surpassed estimates in the trailing four quarters, the average surprise being 25.73%.
Key Growth Catalysts
Pandemic Support-Related Progress: In terms of COVID-19 testing, LabCorp experienced greater-than-anticipated COVID-19 testing volumes in the third quarter. PCR testing volume averaged 85,000 per day in the quarter, up from 54,000 per day in the sequentially last quarter. LabCorp averaged 114,000 tests per day in September, with volumes declining week over week since that time. The company noted that it will continue to maintain high capacity levels to be prepared for potential future scenarios. In terms of new launches, in the third quarter, the company received EUA for a combined COVID-19 and flu-at-home collection kit.
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 Centers for Disease Control and Prevention predict will impact roughly 25% of adults in the United States by 2040. Additionally, in women’s health, another focus area, LabCorp acquired Ovia Health in August, a digital health platform to seek information and support with family planning, pregnancy, and parenting. The transaction extends Labcorp’s position as a go-to source for women’s health insights.
Covance Drug Development Growth Continues: This business is benefitting from collaborations with leading pharmaceutical and biotechnology companies with whom it started to work on potential antivirals, treatments and vaccines. In the third quarter, revenues improved 17.5% year over year within this business, riding on organic Base Business growth of 19.9%, acquisitions growth of 0.4%, and favorable foreign currency translation of 100 basis points. Drug Development Base business benefited from broad-based growth across all businesses, including COVID-19 vaccine and therapeutic work.
Downsides
Exposed to Currency Headwind: With LabCorp deriving a huge share of its revenues internationally, it remains 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 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 14.2% north to $27.70.
The Zacks Consensus Estimate for its 2021 revenues is pegged at $16.00 billion, suggesting 14.5% growth from the year-ago reported number.
Zacks Rank and Other Key Picks
A few other top-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN - Free Report) , Henry Schein, Inc. (HSIC - Free Report) and West Pharmaceutical Services, Inc. (WST - Free Report) .
AMN Healthcare, carrying a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average. You can see the complete list of today's Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry over the past year. AMN has gained 23.8% versus the 62% industry decline.
Henry Schein has an estimated long-term growth rate of 11.8%. HSIC’s earnings surpassed estimates in the trailing four quarters, the average surprise being 21.86%. It currently carries a Zacks Rank #2 (Buy).
Henry Schein has gained 6.1% compared with the industry’s 1.7% rise over the past year.
West Pharmaceutical has a long-term earnings growth rate of 27.6%. West Pharmaceutical surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 29.4%.
West Pharmaceutical has outperformed its industry over the past year. WST currently carries a Zacks Rank of 2.