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LabCorp (LH): Inorganic Growth, Innovation Continues

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On Oct 12, 2016, we issued an updated research report on Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp, a leading independent clinical laboratory company. LabCorp is currently working on portfolio expansion. The company is more focused on the high-margin esoteric testing business to drive its top line.

With the acquisition of Covance, which is now operational as Covance Drug Development, LabCorp expects to expand its range of diagnostic offerings and create a new industry leader in both the laboratory testing and CRO spaces. This will act as a leading provider of medical testing apart from operating as a premier full-service drug development organization.

Apart from massive takeovers like Covance, LabCorp continues to add complementary capabilities through targeted tuck-in acquisitions. The latest in this list is the recently completed acquisition of Sequenom, a prominent player in the field of non-invasive prenatal testing (NIPT) for reproductive health. According to the company, this acquisition will be a strategic fit for its business as Sequenom’s NIPT and genetic testing capabilities will further advance LabCorp’s extensive women's health test menu.

We expect the company to benefit from organic growth as well as introduction of new tests for existing and new customers in the near term. In this regard, the recent launch of a set of new tests including Roche cobas EGFR Mutation Test v2 and a complementary PDL1 diagnostic test for bladder cancer are noteworthy additions to LabCorp’s world-class test menu.

However, the current economic uncertainty remains a hurdle for the company. The strengthening of the dollar continues to weigh on its year-over-year revenue performance. Moreover, changes in governmental regulations have had a considerable impact on LabCorp’s operations. Also, we are highly disappointed with the recent CMS proposal related to Protecting Access to Medicare Act (PAMA).

LabCorp currently carries a Zacks Rank #2 (Buy).

Key Picks      

Some other well-ranked medical stocks are Boston Scientific Corporation (BSX - Free Report) , The Cooper Companies Inc. (COO - Free Report) and NuVasive, Inc. (NUVA - Free Report) . All the three stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boston Scientific has gained 25.7% year to date, much better than the S&P 500’s 4.7% over the same period. Over the past three months, the company’s earnings estimates for the current year have inched up 0.9% to $1.10 per share.

Cooper has seen eight estimates move higher for the current fiscal over the past 60 days, compared to no downward movement. Accordingly, earnings estimates for the year have moved up by 1.2% to $8.42 per share. The stock recorded a gain of 33.6% year to date.

NuVasive recorded an impressive 31.96% gain over the past one year compared to the S&P 500’s 7.27%. Over the next five years, the stock is expected to see 16.7% earnings growth compared to the industry average of 14.8%.

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