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Labcorp's (LH) Strategic Alliances Aid Amid Macroeconomic Woes

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Laboratory Corporation of America Holdings (LH - Free Report) , or Labcorp, has been benefiting from the solid execution of its strategic priorities. Investment in targeted high-growth areas should continue to drive the momentum. However, the company faces headwinds from severely declining COVID-19-related demand and competitive pressure in the industry. The stock carries a Zacks Rank #3 (Hold) currently.

In its efforts to expand further, Labcorp is focusing more on key growth areas such as oncology, women’s health, autoimmune disease and neurology. The company’s ability to develop, license and ultimately scale specialty testing, including companion diagnostics, can be pivotal in driving near-term growth.

Developing specialty tests and companion diagnostics establishes Labcorp as an attractive partner to health systems and biopharma companies, as they develop more therapies in the highest specialty areas. In addition, the company is well-positioned for long-term success in Cell & Gene Therapy, expanding into the consumer market and international growth through specialty testing and biopharma business.

In May 2023, the company teamed up with Forge Biologics for adeno-associated virus (AAV) gene therapy development and collaboration. The Labcorp Plasma Focus test significantly advanced the company’s suite of precision oncology tests, allowing oncologists to better evaluate tumor cells and manage the care of patients through a precision therapy plan.

In addition, the company is investing in innovation and technology that supports diagnostic and drug development testing for various diseases such as cancer and Alzheimer’s. Labcorp is the first company to nationally avail of an ATN profile — a blood-based test that combines three well-researched blood biomarkers to identify and assess biological changes associated with Alzheimer's disease, Amyloid-Tau Alzheimer's and neurodegeneration targeted for patients who are being evaluated from mild dementia.

Further, Labcorp boasts a robust pipeline of potential hospital and local laboratory acquisitions, which present ample opportunities for growth. The company also continues to progress in terms of integrating hospital partnerships and acquisitions.

In the fourth quarter of 2023, the momentum from the health systems and regional local lab partnership strategy remained strong. Labcorp announced a strategic partnership with Baystate Health in Western Massachusetts to acquire its outreach laboratory business and select operating assets. It also completed the acquisition of select assets from Legacy Health and currently manages Legacy's inpatient hospital laboratories, serving patients throughout Oregon and Southwest Washington.

On the flip side, with the end of the pandemic, Labcorp witnessed a significant decline in COVID-19 PCR testing volumes. In the fourth quarter of 2023, testing revenues were down 73%, which affected some of the company’s key metrics.

Labcorp’s operations are also subject to the effects of macroeconomic factors in the United States and globally. These include significant economic fluctuations as a result of the disturbed geopolitical situation and inflation, all leading to an increase in the costs of goods and services. Throughout most of the months of 2023, Labcorp’s Early Development Research Laboratories business grappled with non-human primate (NHP)-related supply-chain issues. The company experienced higher-than-normal cancellations and lower orders, primarily due to small biotech funding.

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. While pricing is an important factor in choosing a testing lab, hospital-affiliated physicians expect a high level of service, including an accurate and rapid turnaround of testing results. As a result, Labcorp and other commercial labs compete with hospital-affiliated labs primarily on the basis of quality of service.

Key Picks

Some better-ranked stocks in the broader medical space are DaVita (DVA - Free Report) , Stryker (SYK - Free Report) and Cardinal Health (CAH - Free Report) . While DaVita sports a Zacks Rank #1 (Strong Buy), Stryker and Cardinal Health carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

DaVita’s stock has surged 63.8% in the past year. Earnings estimates for DaVita have risen from $8.97 to $9.23 for 2024 and from $9.77 to $10.01 for 2025 in the past 30 days.

DVA’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 35.6%. In the last reported quarter, it posted an earnings surprise of 22.2%.

Estimates for Stryker’s 2024 earnings per share have remained constant at $11.86 in the past 30 days. Shares of the company have moved 20.8% upward in the past year compared with the industry’s rise of 2.7%.

SYK’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 5.1%. In the last reported quarter, it delivered an earnings surprise of 5.8%.

Estimates for Cardinal Health’s 2024 earnings per share have moved down 0.1% to $7.28 in the past seven days. Shares of the company have surged 39% in the past year compared with the industry’s 9.2% rise.

CAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 15.6%. In the last reported quarter, it delivered an earnings surprise of 16.7%.

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