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LabCorp's (LH) Base Testing Volume Grows, Costs Rise
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Laboratory Corporation of America Holdingsor LabCorp (LH - Free Report) is gaining from an ongoing rebound in the base business across both operating segments. A strong solvency position is an added upside. However, declining sales and foreign exchange headwinds are a concern. LabCorp currently carries a Zacks Rank #3 (Hold).
LabCorp recorded better-than-expected earnings for the first quarter of 2022. During the quarter, the company saw a continued recovery in the base business across both Diagnostics and Covance Drug Development segments. Within Diagnostics, base business volume rose 4.4% year over year, driven by a significant rise in routine and esoteric testing despite an initial slowdown experienced in January 2022. The trailing 12-month net book-to-bill for Drug Development remained strong at 1.23. The significant revenue contributions from the company’s acquired businesses instill optimism. Further, LabCorp exited the first quarter with a backlog of $15.2 billion. The company anticipates $4.9 billion of this backlog to convert into revenues over the next 12 months.
LabCorp’s slew of product launches and collaborations to pursue short- and long-term high-growth opportunities instill optimism. One such launch was that of the LabCorp OnDemand digital health platform in February 2022. This new platform allows individuals to purchase LabCorp OnDemand tests online, collect samples at the convenience of their home, or schedule test appointments at one of LabCorp’s 2,000 patient service centers, including LabCorp at Walgreens locations. In addition, LabCorp’s collaborations with Prisma Health and Ascension during the first quarter also seem strategic.
In terms of progress in high-growth areas, LabCorp recently introduced a risk scoring test for patients with advanced liver fibrosis due to NASH. The Enhanced Liver Fibrosis (ELF) test, developed by Siemens Healthineers, evaluates the risk of advanced liver fibrosis progression in individuals and allows earlier intervention to support better patient outcomes. In March 2022, LabCorp became the first U.S. commercial laboratory to offer Immundiagnostik, Inc.’s new test that helps individuals to identify and quantify unintended gluten consumption. This test is expected to help physicians in the assessment of true “refractory” celiac disease by ruling out gluten exposure as a cause of the prolonged symptoms.
On the flip side, LabCorp’s revenues for the first quarter lagged the Zacks Consensus Estimate. The significant year-over-year plunge in EPS is worrisome. The ongoing decline in COVID-19 testing sales raises apprehension. During the quarter, COVID-19 testing volume was down 38% from the year-ago period. Additionally, the clinical trial testing solutions, or CTTS business, registered a relatively flat performance as traditional base business growth was impacted by lower COVID-19 vaccine and therapeutic work as well as the ongoing conflict in Ukraine.
On escalating costs, gross margin contracted 681 basis points (bps) to 31.6% in the first quarter. Adjusted operating income marked a 34.2% plunge from the year-ago period. Meanwhile, the adjusted operating margin declined 838 bps from the year-ago quarter to 19.7%. Per management, this decline in adjusted operating income and margin is primarily attributable to a reduction in COVID-19 testing, higher personnel expenses and other inflationary costs during the quarter under review.
With LabCorp deriving a vast share of its revenues internationally, it remains highly exposed to currency fluctuations. Unfavorable currency movements have been a significant dampener over the last few quarters, as is the case with other important MedTech players.
Over the past six months, LabCorp has underperformed its industry. Shares of LabCorp have declined 16.7% compared with the industry’s 12.1% fall.
Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN - Free Report) , Novo Nordisk (NVO - Free Report) and Merck & Co., Inc. (MRK - Free Report) .
AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 13.4% against the industry’s 46% fall.
Novo Nordisk has a long-term earnings growth rate of 14.5%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 7.6%, on average. It currently has a Zacks Rank #2.
Novo Nordisk has outperformed its industry in the past year. NVO has gained 29% compared with the industry’s 15.9% growth.
Merck has a long-term earnings growth rate of 10.1%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13.4%, on average. It currently carries a Zacks Rank #2.
Merck has outperformed its industry in the past year. MRK has gained 17.9% compared with the industry’s 15.9% growth.
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LabCorp's (LH) Base Testing Volume Grows, Costs Rise
Laboratory Corporation of America Holdingsor LabCorp (LH - Free Report) is gaining from an ongoing rebound in the base business across both operating segments. A strong solvency position is an added upside. However, declining sales and foreign exchange headwinds are a concern. LabCorp currently carries a Zacks Rank #3 (Hold).
LabCorp recorded better-than-expected earnings for the first quarter of 2022. During the quarter, the company saw a continued recovery in the base business across both Diagnostics and Covance Drug Development segments. Within Diagnostics, base business volume rose 4.4% year over year, driven by a significant rise in routine and esoteric testing despite an initial slowdown experienced in January 2022. The trailing 12-month net book-to-bill for Drug Development remained strong at 1.23. The significant revenue contributions from the company’s acquired businesses instill optimism. Further, LabCorp exited the first quarter with a backlog of $15.2 billion. The company anticipates $4.9 billion of this backlog to convert into revenues over the next 12 months.
LabCorp’s slew of product launches and collaborations to pursue short- and long-term high-growth opportunities instill optimism. One such launch was that of the LabCorp OnDemand digital health platform in February 2022. This new platform allows individuals to purchase LabCorp OnDemand tests online, collect samples at the convenience of their home, or schedule test appointments at one of LabCorp’s 2,000 patient service centers, including LabCorp at Walgreens locations. In addition, LabCorp’s collaborations with Prisma Health and Ascension during the first quarter also seem strategic.
In terms of progress in high-growth areas, LabCorp recently introduced a risk scoring test for patients with advanced liver fibrosis due to NASH. The Enhanced Liver Fibrosis (ELF) test, developed by Siemens Healthineers, evaluates the risk of advanced liver fibrosis progression in individuals and allows earlier intervention to support better patient outcomes. In March 2022, LabCorp became the first U.S. commercial laboratory to offer Immundiagnostik, Inc.’s new test that helps individuals to identify and quantify unintended gluten consumption. This test is expected to help physicians in the assessment of true “refractory” celiac disease by ruling out gluten exposure as a cause of the prolonged symptoms.
Laboratory Corporation of America Holdings Price
Laboratory Corporation of America Holdings price | Laboratory Corporation of America Holdings Quote
On the flip side, LabCorp’s revenues for the first quarter lagged the Zacks Consensus Estimate. The significant year-over-year plunge in EPS is worrisome. The ongoing decline in COVID-19 testing sales raises apprehension. During the quarter, COVID-19 testing volume was down 38% from the year-ago period. Additionally, the clinical trial testing solutions, or CTTS business, registered a relatively flat performance as traditional base business growth was impacted by lower COVID-19 vaccine and therapeutic work as well as the ongoing conflict in Ukraine.
On escalating costs, gross margin contracted 681 basis points (bps) to 31.6% in the first quarter. Adjusted operating income marked a 34.2% plunge from the year-ago period. Meanwhile, the adjusted operating margin declined 838 bps from the year-ago quarter to 19.7%. Per management, this decline in adjusted operating income and margin is primarily attributable to a reduction in COVID-19 testing, higher personnel expenses and other inflationary costs during the quarter under review.
With LabCorp deriving a vast share of its revenues internationally, it remains highly exposed to currency fluctuations. Unfavorable currency movements have been a significant dampener over the last few quarters, as is the case with other important MedTech players.
Over the past six months, LabCorp has underperformed its industry. Shares of LabCorp have declined 16.7% compared with the industry’s 12.1% fall.
Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN - Free Report) , Novo Nordisk (NVO - Free Report) and Merck & Co., Inc. (MRK - Free Report) .
AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 13.4% against the industry’s 46% fall.
Novo Nordisk has a long-term earnings growth rate of 14.5%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 7.6%, on average. It currently has a Zacks Rank #2.
Novo Nordisk has outperformed its industry in the past year. NVO has gained 29% compared with the industry’s 15.9% growth.
Merck has a long-term earnings growth rate of 10.1%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13.4%, on average. It currently carries a Zacks Rank #2.
Merck has outperformed its industry in the past year. MRK has gained 17.9% compared with the industry’s 15.9% growth.