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New Buyouts & Envigo Deal Aid LabCorp Amid Regulatory Woes

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On Mar 24, we issued an updated research report on LabCorp LH. The company has been grappling with multiple issues, of late. Economic uncertainties, including a challenging volume environment for testing laboratories and softness in utilization, are headwinds for LabCorp.

However, in recent quarters, the company, a provider of comprehensive clinical laboratory services and end-to-end drug development support, successfully registered a strong underlying performance as well as organic revenue growth across both Diagnostics and Drug Development businesses. This upside is aided by the solid execution of three fundamental strategies, which are delivering advanced diagnostics, bringing new medicines to patients faster and using technology to enhance patient care.

In the last reported quarter, the Diagnostics business grew organically in terms of both revenues and volumes despite additional price reductions due to the Protecting Access to Medicare Act (PAMA) and the loss of exclusivity in two of the company’s largest managed-care contracts. Within Diagnostics, the company recorded sturdy revenue per requisition and a robust implementation of its LaunchPad 2 initiatives.

Covance Drug Development also advanced organically despite the unfavorable impact of foreign-currency translation. The company has enhanced Covance's offerings through strategic acquisitions like MI Bioresearch that adds specialized preclinical capabilities to cell and gene therapy as well as oncology testing.

The company is also hopeful about its recently-completed business swap transaction with Envigo. This tactical move provides Covance with better global non-clinical research skills, while maintaining access to bigger research models and services via a multi-year renewable supply agreement.

Right now, LabCorp is on track to deliver $10 million of net costs synergies from the integration and Envigo by 2021 end. This apart, the Covance LaunchPad plan is well on course to generate net savings worth $150 million by the end of 2020.

Over the past year, shares of this Burlington, NC-based healthcare diagnostics player have depreciated 31.7% compared with the industry’s 31.8% fall.

On the flip side, apart from a challenging volume environment for the testing laboratories, disposition of certain businesses and the implementation of the Protecting Access to Medicare Act (PAMA) dented growth. Moreover, an unfavorable currency movement is a lingering downside. The stock currently carries a Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks in the broader medical space are ResMed Inc. RMD, Medtronic plc MDT and Hill-Rom Holdings, Inc HRC.

ResMed has a projected long-term earnings growth rate of 12%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Medtronic’s long-term earnings growth rate is estimated at 7.4%. The company presently carries a Zacks Rank #2.

Hill-Rom’s long-term earnings growth rate is estimated at 11.1%. It currently carries a Zacks Rank #2.

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