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Why Is LabCorp (LH) Up 1.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for LabCorp (LH - Free Report) . Shares have added about 1.6% 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 its most recent earnings report in order to get a better handle on the important drivers.

Business Disposition and Currency Translation Dent LabCorp's Growth in Q1

LabCorp reported first-quarter 2019 adjusted earnings per share (EPS) of $2.62, down 5.8% from the year-ago quarter. However, the bottom line surpassed the Zacks Consensus Estimate by 3.6%.

On a reported basis, net earnings came in at $1.86 per share as compared with $1.67 a year ago.

Revenues in the quarter under review dipped 2.1% year over year to $2.79 billion. The top line also lagged the Zacks Consensus Estimate of $2.82 billion.

The year-over-year decline was primarily due to a 1.8% negative impact from the disposition of businesses and foreign currency translation of approximately 0.9%, partially offset by growth from acquisitions of 0.5% and organic growth of 0.2% (which includes the negative impact from Protecting Access to Medicare Act or PAMA of 0.9%).

Quarter Under Review

LabCorp reports under two operating segments: LabCorp Diagnostics and Covance Drug Development.

In the first quarter, LabCorp Diagnostics reported revenues of $1.72 billion, a 2.7% drop year over year. The decline was primarily due to a 2.9% headwind from the disposition of businesses and a 1.5% negative impact from the implementation of the PAMA. In addition, foreign currency translation reduced revenue by approximately 0.3%.

Excluding the disposition of businesses, the company reported a 0.8% rise in total volume (measured by requisition) and a 0.4% decline in revenue per requisition in the quarter under review.

Covance Drug Development reported a 0.4% decline in revenues to $1.07 billion in the first quarter. The downside was primarily due to the adverse impact of foreign currency translation of nearly 210 bps, partially offset by partially offset by growth from acquisitions of 1.2% and organic growth of 0.5%.

Gross margin expanded 94 bps to 28.3% in the reported quarter. Adjusted operating income was up 3.6% year over year to $395.9 million. Also, adjusted operating margin expanded 77 bps from the year-ago quarter to 14.2%.

LabCorp exited the first quarter with cash and cash equivalents of $348.8 million compared with $426.8 million at the end of 2018.At the end of the first quarter, operating cash flow was $165.8 million, down from $179.7 million in the year-ago period. Free cash flow came in at $71.6 million in this period, down from $107.2 million a year ago.

During the quarter under discussion, the company returned $100 million to shareholders via share repurchases. LabCorp currently has $1.25 billion of authorization remaining under its existing share repurchase plan.

Outlook

LabCorp has updated its 2019 guidance.

Revenue growth expectation has been reiterated in the band of 0.5-2.5% from 2018. This includes a projected adverse impact from the disposition of businesses of around 1.2% and foreign currency translation of roughly 0.5%. The Zacks Consensus Estimate for current-year revenues is pegged at $11.47 billion.

Adjusted EPS expectation for 2019 has been raised to a range of $11.05 to $11.45 from the earlier range of $11 to $11.40. The consensus mark of $11.22 for the metric is within the guided range.

Free cash flow is projected in the band of $950 million-$1.05 billion (unchanged).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, LabCorp has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. 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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