Back to top

Image: Bigstock

LabCorp (LH) Up 6.8% Since Last Earnings Report: Can It Continue?

Read MoreHide Full Article

A month has gone by since the last earnings report for LabCorp (LH - Free Report) . Shares have added about 6.8% 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.

Coronavirus Impact Dent LabCorp's Testing Volume in Q1

LabCorp reported first-quarter 2020 adjusted earnings per share (EPS) of $2.37, down 9.5% from the year-ago quarter. The adjusted figure was negatively impacted by an estimated 55 cents per share due to the COVID-19 pandemic. However, the bottom line surpassed the Zacks Consensus Estimate by 12.9%.

The quarter’s adjustments exclude non-recurring items like Restructuring and other charges in connection with LaunchPad initiatives and acquisitions or dispositions of businesses.

On a reported basis, net loss was $3.27 per share, a significant decline from net earnings of $1.88 in the year-ago period.
Revenues in the quarter under review improved 1.2% year over year to $2.82 billion and exceeded the Zacks Consensus Estimate by 3.9%.

The upside in revenues was driven by acquisition-related growth of 3.4%, partially offset by a 0.5% decline in revenues from the disposition of a business and 1.8% decline in organic revenues. The lower organic revenues could be attribute toa 4.9% adverse impact of COVID-19 and 0.7% negative impact of lower Medicare and Medicaid pricing as a result of implementation of Protecting Access to Medicare Act (PAMA).

Quarter in Detail

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

In the first quarter, LabCorp Diagnostics reported revenues of $1.70 billion, reflecting 1.2% decline year over year. On an organic basis, revenues declined 2.9%. This included a 5.4% negative impact from COVID-19 and a 1.1% adverse impact of PAMA. Organic revenue decline was partially offset by acquisitions-related growth of 1.7%.

The company witnessed a 4.4% decline in total volume (measured by requisition). Organic volume declined 6.1%, primarily on 7.3% negative impact from COVID-19 due to 50% to 55% reduced demand for testing compared to LabCorp’s normal daily levels. This was, however, marginally offset by an increase in demand for COVID-19 tests. There was 3.4% improvement in revenue per requisition in the first quarter.

Covance Drug Development revenues improved 6.4% to $1.14 billion in the first quarter buoyed by 6.2% contribution from acquisitions and 1.6% organic growth, partially offset by 1.2% impact owing to the disposition of the Covance Research Products business and 0.1% impact of adverse foreign currency translation.

Margins

Gross margin contracted 251 basis points (bps) to 25.8% in the first quarter. Also, adjusted operating income declined 16% year over year to $333 million. However, adjusted operating margin contracted 241 bps from the year-ago quarter to 11.8%.

Cash Position

LabCorp exited the first quarter with cash and cash equivalents of $323.6 million compared with $337.5 million at the end of 2019. Cash flow from operating activities at the end of the first quarter was $203.8 million, up from $165.8 million a year ago. Additionally, free cash flow at the end of the quarter was $97 million, up 36% from the year-ago period.

In the first quarter, the company returned $100 million to shareholders via share repurchases. However, amid the pandemic, it has temporarily suspended its existing share repurchase program.

2020 View

The company has withdrawn its 2020 guidance as it is currently unable to gauge the impact of the ongoing COVID-19 pandemic. However, it expects to deliver solid free cash flow in 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted -67.65% due to these changes.

VGM Scores

At this time, LabCorp has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward 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.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Labcorp (LH) - free report >>

Published in