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Can LabCorp (LH) Pull a Surprise this Earnings Season?

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Laboratory Corp. of America Holdings (LH - Free Report) , or LabCorp, is scheduled to report third-quarter 2016 results before the market opens on Oct 26.

Last quarter, the company reported a positive earnings surprise of 0.87% with the four-quarter trailing average beat being 0.86%. Let’s see how things are shaping up prior to this announcement.

Factors at Play

Recently, LabCorp completed the acquisition of Sequenom, Inc. which is aimed at expanding the company’s presence at both domestic and international levels. The buyout is also likely to help LabCorp strengthen its position in the domains of non-invasive prenatal testing, women’s health and reproductive genetics.

LABORATORY CP Price and EPS Surprise



Meanwhile, the company continues to focus on expanding its testing capabilities beyond the conventional health care setting. Post the last reported second quarter, LabCorp announced nationwide availability of testing for Zika virus using the Zika Immunoglobulin M (IgM) Antibody Capture Enzyme-Linked Immunosorbent Assay (Zika MAC-ELISA). We believe this will help the company meet the growing health care needs.

Management also intends to continue its expansion drive in the food safety test space by making the best use of its expertise. The company also wants to emphasize on innovation through commercialization of new technologies that allow faster pathogen detection. LabCorp is also developing innovative solutions and expanding therapeutic expertise in critical areas of drug development to come up with ground-breaking medicines. We believe these recent developments will contribute to the company’s top line in the third quarter as well.

However, foreign exchange headwind and intense competition from major commercial laboratories and hospitals are major headwinds. We are also highly disappointed with the CMS proposal related to the Protecting Access to Medicare Act (PAMA).

Earnings Whispers

Our proven model does not conclusively show that LabCorp is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP:  LabCorp has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $2.29.

Zacks Rank: LabCorp has a Zacks Rank #2 which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Glaukos Corporation (GKOS - Free Report) has an earnings ESP of +200% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Edward Lifesciences Corp. (EW - Free Report) has an earnings ESP of +2.94% and a Zacks Rank #2.

Invuity, Inc. (IVTY - Free Report) has an earnings ESP of +8.07% and a Zacks Rank #2.

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