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Here's Why Investors Should Retain Labcorp (LH) Stock for Now
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Laboratory Corporation of America Holdings (LH - Free Report) , or Labcorp, is well-poised to grow in the coming quarters, led by collaborations with leading pharmaceutical and biotechnology companies. Labcorp also remains active on the acquisition front, maintaining a solid business development pipeline.
However, adverse currency fluctuations are a concerning for the company.
In the past year, this Zacks Rank #3 (Hold) stock has gained 6.3% compared with a 4.7% rise of the industry and a 27.8% increase of the S&P 500 composite.
The renowned healthcare diagnostics company has a market capitalization of $16.99 billion. In the last reported quarter, the company delivered an average earnings surprise of 0.30%.
Let’s delve deeper.
Factors at Play
Biopharma Laboratory Service Expansion Continues: This business is benefiting from collaborations with leading pharmaceutical and biotechnology companies with whom it started to work on potential antivirals, treatments and vaccines. Biopharma's growth continues to be driven by strength in central laboratories, its largest part, which improved 13% in the first quarter of 2024. Labcorp is poised to sustain its strong performance in biopharma laboratory services throughout 2024, building on the momentum from last year.
Strategic Partnerships to Drive Growth: Labcorp’s robust pipeline of potential hospital and local laboratory acquisitions presents ample opportunities for its growth. The company also continues to progress in terms of integrating hospital partnerships and acquisitions. During March 2024, Labcorp closed three transactions, including health system agreements with Baystate Health in Massachusetts, Providence’s outreach laboratory business in Northern California and Orange County and also acquired a regional lab in California. The recent agreement to acquire select assets from BioReference's health diagnostics business will significantly enhance access to Labcorp’s high-quality clinical laboratory services, particularly in clinical diagnostics and reproductive women's health.
LaunchPad Initiative Right on Track: To enhance shareholder value, Labcorp previously implemented a new LaunchPad business process improvement initiative, targeting savings of $350 million over the next three years ending 2024. We are pleased to see that the company is on track to deliver $100-$125 million of savings this year through this initiative, consistent with its long-term target.
Image Source: Zacks Investment Research
Labcorp has placed a continued focus on expanding its margins though the LaunchPad initiative. The company’s 2024-2026 guidance includes a savings target range of $100-$125 million annually.
Downsides
Debt Profile: At the end of the first quarter of 2024, Labcorp had short-term borrowings and the current portion of the long-term debt of $2.04 billion and cash and cash equivalents of $99.3 million. This raises our concern about the company’s ability to meet its immediate debt obligations. Long-term debt (net of current portion) was $3.05 billion at the end of the first quarter compared to $4.05 billion as of Dec 31, 2023. The company had a times-interest-earned ratio of 4.0, sequentially up by 0.2%.
Exposed to Currency Headwind: Labcorp’s significant revenue generation from international operations makes it vulnerable to currency fluctuations. Approximately 12.9% of the company’s revenues were denominated in currencies other than the U.S. dollar in 2023. With the recent upward trend observed in the value of the U.S. dollar, further acceleration expected by analysts in this value will cause the company’s revenues to face a challenging situation overseas.
Estimate Trend
The Zacks Consensus Estimate for LH’s fiscal 2024 earnings per share (EPS) has moved up from $14.60 to $14.87 in the past 90 days.
The Zacks Consensus Estimate for the company’s fiscal 2024 revenues is pegged at $12.82 billion, suggesting a decline of 0.6% from the year-ago reported figure.
Key Picks
Some better-ranked stocks from the broader medical space are Medpace (MEDP - Free Report) , ResMed (RMD - Free Report) and Encompass Health Corporation (EHC - Free Report) .
Medpace, sporting a Zacks Rank #1 (Strong Buy), reported a first-quarter 2024 EPS of $3.20, beating the Zacks Consensus Estimate by 30.6%. Revenues of $511 million improved 17.7% from last year’s comparable figure. You can see the complete list of today’s Zacks #1 Rank stocks here.
Medpace has an estimated 2024 earnings growth rate of 26.5% compared with the industry’s 12.3%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 12.8%.
ResMed, sporting a Zacks Rank #1, reported a first-quarter 2024 EPS of $2.13, which topped the Zacks Consensus Estimate by 10.9%. Revenues of $1.20 billion surpassed the Zacks Consensus Estimate by 1.9%.
RMD has an estimated fiscal 2024 earnings growth rate of 17.9% compared with the industry’s 15.7%. In each of the trailing four quarters, the company delivered an average earnings surprise of 2.8%.
Encompass Health, carrying a Zacks Rank #2 (Buy), reported a first-quarter 2024 adjusted EPS of $1.12, surpassing the Zacks Consensus Estimate by 20.4%. Net operating revenues of $1.3 billion topped the Zacks Consensus Estimate by 3.6%.
EHC has an estimated long-term earnings growth rate of 15.6% compared with the industry’s 11.7% growth. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 18.7%.
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Here's Why Investors Should Retain Labcorp (LH) Stock for Now
Laboratory Corporation of America Holdings (LH - Free Report) , or Labcorp, is well-poised to grow in the coming quarters, led by collaborations with leading pharmaceutical and biotechnology companies. Labcorp also remains active on the acquisition front, maintaining a solid business development pipeline.
However, adverse currency fluctuations are a concerning for the company.
In the past year, this Zacks Rank #3 (Hold) stock has gained 6.3% compared with a 4.7% rise of the industry and a 27.8% increase of the S&P 500 composite.
The renowned healthcare diagnostics company has a market capitalization of $16.99 billion. In the last reported quarter, the company delivered an average earnings surprise of 0.30%.
Let’s delve deeper.
Factors at Play
Biopharma Laboratory Service Expansion Continues: This business is benefiting from collaborations with leading pharmaceutical and biotechnology companies with whom it started to work on potential antivirals, treatments and vaccines. Biopharma's growth continues to be driven by strength in central laboratories, its largest part, which improved 13% in the first quarter of 2024. Labcorp is poised to sustain its strong performance in biopharma laboratory services throughout 2024, building on the momentum from last year.
Strategic Partnerships to Drive Growth: Labcorp’s robust pipeline of potential hospital and local laboratory acquisitions presents ample opportunities for its growth. The company also continues to progress in terms of integrating hospital partnerships and acquisitions. During March 2024, Labcorp closed three transactions, including health system agreements with Baystate Health in Massachusetts, Providence’s outreach laboratory business in Northern California and Orange County and also acquired a regional lab in California. The recent agreement to acquire select assets from BioReference's health diagnostics business will significantly enhance access to Labcorp’s high-quality clinical laboratory services, particularly in clinical diagnostics and reproductive women's health.
LaunchPad Initiative Right on Track: To enhance shareholder value, Labcorp previously implemented a new LaunchPad business process improvement initiative, targeting savings of $350 million over the next three years ending 2024. We are pleased to see that the company is on track to deliver $100-$125 million of savings this year through this initiative, consistent with its long-term target.
Labcorp has placed a continued focus on expanding its margins though the LaunchPad initiative. The company’s 2024-2026 guidance includes a savings target range of $100-$125 million annually.
Downsides
Debt Profile: At the end of the first quarter of 2024, Labcorp had short-term borrowings and the current portion of the long-term debt of $2.04 billion and cash and cash equivalents of $99.3 million. This raises our concern about the company’s ability to meet its immediate debt obligations. Long-term debt (net of current portion) was $3.05 billion at the end of the first quarter compared to $4.05 billion as of Dec 31, 2023. The company had a times-interest-earned ratio of 4.0, sequentially up by 0.2%.
Exposed to Currency Headwind: Labcorp’s significant revenue generation from international operations makes it vulnerable to currency fluctuations. Approximately 12.9% of the company’s revenues were denominated in currencies other than the U.S. dollar in 2023. With the recent upward trend observed in the value of the U.S. dollar, further acceleration expected by analysts in this value will cause the company’s revenues to face a challenging situation overseas.
Estimate Trend
The Zacks Consensus Estimate for LH’s fiscal 2024 earnings per share (EPS) has moved up from $14.60 to $14.87 in the past 90 days.
The Zacks Consensus Estimate for the company’s fiscal 2024 revenues is pegged at $12.82 billion, suggesting a decline of 0.6% from the year-ago reported figure.
Key Picks
Some better-ranked stocks from the broader medical space are Medpace (MEDP - Free Report) , ResMed (RMD - Free Report) and Encompass Health Corporation (EHC - Free Report) .
Medpace, sporting a Zacks Rank #1 (Strong Buy), reported a first-quarter 2024 EPS of $3.20, beating the Zacks Consensus Estimate by 30.6%. Revenues of $511 million improved 17.7% from last year’s comparable figure. You can see the complete list of today’s Zacks #1 Rank stocks here.
Medpace has an estimated 2024 earnings growth rate of 26.5% compared with the industry’s 12.3%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 12.8%.
ResMed, sporting a Zacks Rank #1, reported a first-quarter 2024 EPS of $2.13, which topped the Zacks Consensus Estimate by 10.9%. Revenues of $1.20 billion surpassed the Zacks Consensus Estimate by 1.9%.
RMD has an estimated fiscal 2024 earnings growth rate of 17.9% compared with the industry’s 15.7%. In each of the trailing four quarters, the company delivered an average earnings surprise of 2.8%.
Encompass Health, carrying a Zacks Rank #2 (Buy), reported a first-quarter 2024 adjusted EPS of $1.12, surpassing the Zacks Consensus Estimate by 20.4%. Net operating revenues of $1.3 billion topped the Zacks Consensus Estimate by 3.6%.
EHC has an estimated long-term earnings growth rate of 15.6% compared with the industry’s 11.7% growth. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 18.7%.