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Why Is LabCorp (LH) Up 0.8% Since Last Earnings Report?
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A month has gone by since the last earnings report for LabCorp (LH - Free Report) . Shares have added about 0.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is LabCorp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
LabCorp reported second-quarter 2018 adjusted earnings per share (EPS) of $2.98, up 22.6% from the year-ago quarter. The bottom line also exceeded the Zacks Consensus Estimate by 2.1%.
On a reported basis, LabCorp’s net earnings came in at $2.27 per share as compared to $1.78 in the year-ago period. Revenues for the second quarter increased 13.4% year over year to $2.87 billion. The top line exceeded the Zacks Consensus Estimate of $2.85 billion. The year-over-year rise in revenues was owing to 10.5% growth from acquisitions, organic growth of 2.1% and a benefit of approximately 80 basis points from foreign currency translation.
Quarter Under Review
LabCorp reports under two operating segments: LabCorp Diagnostics and Covance Drug Development.
In the reported quarter, LabCorp Diagnostics reported revenues of $1.81 billion, up 5.4% year over year, fueled by tuck-in acquisitions, organic volume (measured by requisitions) and a gain from foreign currency translation of roughly 30 basis points. This was partially offset by lower Medicare reimbursement as a result of the implementation of the Protecting Access to Medicare Act (PAMA).
The company reported a 5.8% rise in total volume (measured by requisition) and a 0.7% decline in revenue per requisition in the concerning quarter.
Covance Drug Development reported a 30.5% rise in revenues to $1.05 billion in the second quarter. This upside was primarily on the back of acquisitions, organic growth and the foreign currency translation benefit of nearly 180 basis points.
Gross margin deteriorated 164 bps to 29.1% in the reported quarter. Adjusted operating income was up 4.7% year over year to $439.9 million. However, adjusted operating margin contracted 128 bps from the year-ago quarter to 15.3% on a 10.4% rise in selling, general and administrative expenses to $395.2 million.
LabCorp exited the second quarter of 2018 with cash and cash equivalents of $221.4 million compared with $361.8 million at the end of the first quarter. Year-to-date operating cash flow was $522 million, down 2.7% from $536.4 million in the year-ago period. Free cash flow came in at $362.3 million in this period, down 8.3% from the year-ago period.
During the quarter under discussion, the company returned $75 million to shareholders via share repurchases. The company currently has $993.5 million of authorization remaining under its existing share repurchase program.
Outlook
LabCorp has narrowed its 2018 guidance.
Revenue growth is expected to remain in the band of 10.5-11.5% from 2017 (earlier projected band was 10-12%) including a likely improvement of 50 bps (from projection of 90 bps improvement earlier) from a foreign currency translation. The Zacks Consensus Estimate for current-year revenues is pegged at $11.47 billion.
Adjusted EPS for 2018 has been narrowed to a new range of $11.35 to $11.65 (earlier range was $11.30-$11.70). The consensus mark of $11.56 for the metric falls within the guided range.
Free cash flow has been anticipated within $1.1-$1.2 billion, growth in the band of 0-9.1% from the prior year (unchanged).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, LabCorp has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, LabCorp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is LabCorp (LH) Up 0.8% Since Last Earnings Report?
A month has gone by since the last earnings report for LabCorp (LH - Free Report) . Shares have added about 0.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is LabCorp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
LabCorp reported second-quarter 2018 adjusted earnings per share (EPS) of $2.98, up 22.6% from the year-ago quarter. The bottom line also exceeded the Zacks Consensus Estimate by 2.1%.
On a reported basis, LabCorp’s net earnings came in at $2.27 per share as compared to $1.78 in the year-ago period.
Revenues for the second quarter increased 13.4% year over year to $2.87 billion. The top line exceeded the Zacks Consensus Estimate of $2.85 billion. The year-over-year rise in revenues was owing to 10.5% growth from acquisitions, organic growth of 2.1% and a benefit of approximately 80 basis points from foreign currency translation.
Quarter Under Review
LabCorp reports under two operating segments: LabCorp Diagnostics and Covance Drug Development.
In the reported quarter, LabCorp Diagnostics reported revenues of $1.81 billion, up 5.4% year over year, fueled by tuck-in acquisitions, organic volume (measured by requisitions) and a gain from foreign currency translation of roughly 30 basis points. This was partially offset by lower Medicare reimbursement as a result of the implementation of the Protecting Access to Medicare Act (PAMA).
The company reported a 5.8% rise in total volume (measured by requisition) and a 0.7% decline in revenue per requisition in the concerning quarter.
Covance Drug Development reported a 30.5% rise in revenues to $1.05 billion in the second quarter. This upside was primarily on the back of acquisitions, organic growth and the foreign currency translation benefit of nearly 180 basis points.
Gross margin deteriorated 164 bps to 29.1% in the reported quarter. Adjusted operating income was up 4.7% year over year to $439.9 million. However, adjusted operating margin contracted 128 bps from the year-ago quarter to 15.3% on a 10.4% rise in selling, general and administrative expenses to $395.2 million.
LabCorp exited the second quarter of 2018 with cash and cash equivalents of $221.4 million compared with $361.8 million at the end of the first quarter. Year-to-date operating cash flow was $522 million, down 2.7% from $536.4 million in the year-ago period. Free cash flow came in at $362.3 million in this period, down 8.3% from the year-ago period.
During the quarter under discussion, the company returned $75 million to shareholders via share repurchases. The company currently has $993.5 million of authorization remaining under its existing share repurchase program.
Outlook
LabCorp has narrowed its 2018 guidance.
Revenue growth is expected to remain in the band of 10.5-11.5% from 2017 (earlier projected band was 10-12%) including a likely improvement of 50 bps (from projection of 90 bps improvement earlier) from a foreign currency translation. The Zacks Consensus Estimate for current-year revenues is pegged at $11.47 billion.
Adjusted EPS for 2018 has been narrowed to a new range of $11.35 to $11.65 (earlier range was $11.30-$11.70). The consensus mark of $11.56 for the metric falls within the guided range.
Free cash flow has been anticipated within $1.1-$1.2 billion, growth in the band of 0-9.1% from the prior year (unchanged).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, LabCorp has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, LabCorp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.