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LabCorp (LH) Gains From Covance Arm Growth, Cost Pressure Ails
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Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp has been gaining from strength in its Covance Drug Development business. The company’s acquisitions of Ovia Health and Personal Genome Diagnostics to strengthen its position in high-growth opportunity areas buoy optimism. However, tough competition and forex woes raise apprehensions. The stock currently carries a Zacks Rank #3 (Hold).
LabCorp exited the fourth quarter of 2021 with better-than-expected earnings and revenues. During the quarter, the Covance Drug Development business delivered higher sales on strong base business growth. Within Diagnostics, base business organic volume increased on solid year-over-year growth in esoteric and routine procedures. In terms of COVID-19 response, in the fourth quarter, LabCorp experienced greater-than-anticipated COVID-19 testing volumes. The company conducted nearly 8.6 million COVID-19 tests in the reported quarter.
In addition, LabCorp ended the fourth quarter with a backlog of $15 billion. The company anticipates this backlog to convert into revenues over the next 12 months.
The company’s Covance Drug Development business is benefiting from collaborations with leading pharmaceutical and biotechnology companies with whom it is working on antivirals, treatments and vaccines. The Drug Development business ended 2021 with a trailing 12-month net book-to-bill of 1.25 and a robust backlog of $15 billion, up by $579 million from the third quarter. In addition, decentralized clinical trial awards were increased by 62% over the prior year. The compound annual growth rate for base business revenues was 9.9%, relative to the fourth quarter of 2019. This was primarily driven by organic growth. LabCorp anticipates total Drug Development revenues in 2022 to rise 7-9.5% from 2021.
LabCorp has recently acquired an autoimmune business unit from Myriad Genetics, including Vectra, a rheumatoid arthritis assay. This is expected to strengthen the company’s position in the rheumatoid arthritis space, which the Centers for Disease Control and Prevention (CDC) predicts will impact roughly 25% of adults in the United States by 2040.
Additionally, in women’s health, which is another focus area, LabCorp acquired Ovia Health in August 2021, a digital health platform to seek information and support with respect to family planning, pregnancy and parenting. The transaction extends Labcorp’s position as a go-to source for women’s health insights.
On the flip side, LabCorp’s fourth-quarter 2021 adjusted earnings and revenues declined on a year-over-year basis. Lower contributions from COVID-19 testing significantly impacted diagnostics revenues in the quarter. The company’s base business continued to be hampered by higher personnel and other inflationary costs.
On escalating costs, gross margin contracted 853 basis points (bps) to 33.9%. Adjusted operating income marked a 40.1% plunge from the year-ago period. Adjusted operating margin contracted 1039 bps from the year-ago quarter to 20.5%.
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 in the case of other important MedTech players. While the trend has shown some improvement in the reported quarter, sustainability remains a matter of question.
Over the past six months, LabCorp has underperformed its industry. Shares of LabCorp have declined 1.8% compared to the industry’s 2.6% increase.
Key Picks
A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , Henry Schein, Inc. (HSIC - Free Report) and McKesson Corporation (MCK - Free Report) .
AMN Healthcare has a long-term earnings growth rate of 16.2%. The company's earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, delivering a surprise of 19.5%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 38.5% versus the 53.5% industry decline.
Henry Schein has an estimated long-term growth rate of 11.8%. Henry Schein’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%. It currently has a Zacks Rank #2 (Buy).
Henry Schein has outperformed the industry over the past year. HSIC has gained 26% compared with the industry’s 7.6% rise over the past year.
McKesson has a long-term earnings growth rate of 11.8%. McKesson’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 20.6%, on average. It presently carries a Zacks Rank #2.
McKesson has outperformed the industry over the past year. MCK has gained 58.4% in the said period compared with 7.6% growth of the industry.
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LabCorp (LH) Gains From Covance Arm Growth, Cost Pressure Ails
Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp has been gaining from strength in its Covance Drug Development business. The company’s acquisitions of Ovia Health and Personal Genome Diagnostics to strengthen its position in high-growth opportunity areas buoy optimism. However, tough competition and forex woes raise apprehensions. The stock currently carries a Zacks Rank #3 (Hold).
LabCorp exited the fourth quarter of 2021 with better-than-expected earnings and revenues. During the quarter, the Covance Drug Development business delivered higher sales on strong base business growth. Within Diagnostics, base business organic volume increased on solid year-over-year growth in esoteric and routine procedures. In terms of COVID-19 response, in the fourth quarter, LabCorp experienced greater-than-anticipated COVID-19 testing volumes. The company conducted nearly 8.6 million COVID-19 tests in the reported quarter.
In addition, LabCorp ended the fourth quarter with a backlog of $15 billion. The company anticipates this backlog to convert into revenues over the next 12 months.
The company’s Covance Drug Development business is benefiting from collaborations with leading pharmaceutical and biotechnology companies with whom it is working on antivirals, treatments and vaccines. The Drug Development business ended 2021 with a trailing 12-month net book-to-bill of 1.25 and a robust backlog of $15 billion, up by $579 million from the third quarter. In addition, decentralized clinical trial awards were increased by 62% over the prior year. The compound annual growth rate for base business revenues was 9.9%, relative to the fourth quarter of 2019. This was primarily driven by organic growth. LabCorp anticipates total Drug Development revenues in 2022 to rise 7-9.5% from 2021.
Laboratory Corporation of America Holdings' Price
Laboratory Corporation of America Holdings price | Laboratory Corporation of America Holdings Quote
LabCorp has recently acquired an autoimmune business unit from Myriad Genetics, including Vectra, a rheumatoid arthritis assay. This is expected to strengthen the company’s position in the rheumatoid arthritis space, which the Centers for Disease Control and Prevention (CDC) predicts will impact roughly 25% of adults in the United States by 2040.
Additionally, in women’s health, which is another focus area, LabCorp acquired Ovia Health in August 2021, a digital health platform to seek information and support with respect to family planning, pregnancy and parenting. The transaction extends Labcorp’s position as a go-to source for women’s health insights.
On the flip side, LabCorp’s fourth-quarter 2021 adjusted earnings and revenues declined on a year-over-year basis. Lower contributions from COVID-19 testing significantly impacted diagnostics revenues in the quarter. The company’s base business continued to be hampered by higher personnel and other inflationary costs.
On escalating costs, gross margin contracted 853 basis points (bps) to 33.9%. Adjusted operating income marked a 40.1% plunge from the year-ago period. Adjusted operating margin contracted 1039 bps from the year-ago quarter to 20.5%.
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 in the case of other important MedTech players. While the trend has shown some improvement in the reported quarter, sustainability remains a matter of question.
Over the past six months, LabCorp has underperformed its industry. Shares of LabCorp have declined 1.8% compared to the industry’s 2.6% increase.
Key Picks
A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , Henry Schein, Inc. (HSIC - Free Report) and McKesson Corporation (MCK - Free Report) .
AMN Healthcare has a long-term earnings growth rate of 16.2%. The company's earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, delivering a surprise of 19.5%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 38.5% versus the 53.5% industry decline.
Henry Schein has an estimated long-term growth rate of 11.8%. Henry Schein’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%. It currently has a Zacks Rank #2 (Buy).
Henry Schein has outperformed the industry over the past year. HSIC has gained 26% compared with the industry’s 7.6% rise over the past year.
McKesson has a long-term earnings growth rate of 11.8%. McKesson’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 20.6%, on average. It presently carries a Zacks Rank #2.
McKesson has outperformed the industry over the past year. MCK has gained 58.4% in the said period compared with 7.6% growth of the industry.