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Should You Hold Labcorp (LH) Stock in Your Portfolio Now?
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Laboratory Corporation of America Holdings (LH - Free Report) , or Labcorp, is poised for growth in the upcoming quarters due to its series of strategic acquisitions and partnerships. The company is nearing its targeted savings for the Launchpad business process improvement initiative by the end of 2024. Additionally, its strong emphasis on high-growth sectors like oncology, women’s health and neurology paves the way for substantial market gains.
Meanwhile, unfavorable solvency and the adverse impacts of macroeconomic challenges pose concerns for Labcorp’s operations.
In the past year, this Zacks Rank #3 (Hold) stock has risen 6.5% against the 3% fall of the industry and a 26.2% rise of the S&P 500 composite.
The renowned healthcare diagnostics company has a market capitalization of $18.95 billion. In the trailing four quarters, the company delivered an average earnings surprise of 2.8%.
Let’s delve deeper.
Factors at Play
Strategic Acquisitions and Partnerships to Drive Growth: Labcorp’s robust pipeline of potential hospital and local laboratory acquisitions presents ample opportunities for its growth. The company is advancing in terms of integrating hospital partnerships and acquisitions. Labcorp expects to close the acquisition of select BioReference Health Diagnostics business assets by the end of the third quarter, expanding its clinical diagnostics and women's health offerings.
The company won the bid for purchasing select assets of Invitae, approved by the United States Bankruptcy Court. Other notable deals include agreements with Baystate Health in Massachusetts, Providence’s outreach laboratory business in Northern California and Orange County and a regional lab in California. In addition, Labcorp teamed up with Hawthorne Effect to boost decentralized clinical trial capabilities.
LaunchPad Initiative Right on Track: Labcorp’s LaunchPad initiative is on track to deliver $100 million to $125 million of savings this year, consistent with its long-term target of $350 million by 2024. The initiative focuses on margin expansion, with the second-quarter operating income and margin fueled by the strong demand and savings from the program.
The company’s 2024-2026 guidance includes a savings target range of $100 million-$125 million annually. The benefits will be driven by rationalizing the geographic location of facilities and talent, leveraging technological advancements and structural enhancements, integrating acquisitions, and re-engineering the company’s systems and processes.
Advancements in High-Growth Areas: Labcorp is focusing more on key growth areas such as oncology, women’s health, autoimmune disease and neurology to drive expansion. The company’s strategy to develop and scale specialty testing, including companion diagnostics, is crucial to drive short-term growth. Its recent acquisition of Invitae assets showcases its robust business development pipeline and commitment to expanding specialty testing in oncology and rare disease areas.
Image Source: Zacks Investment Research
Among the developments in the second quarter, Labcorp Tissue Complete comprehensive genomic profiling (CGP) service was availed in Geneva and Shanghai to support global clinical trials. The integration of OmniSeq INSIGHT circulating tumor DNA expanded Labcorp’s leadership in liquid biopsy comprehensive genomic profiling for solid tumors.
The company launched the first-trimester screening test to assess preeclampsia risk during pregnancy, the only test of its kind available in the United States. A key milestone was the nationwide launch of the GFAP (glial fibrillary acidic protein) test — Labcorp’s unique offering designed for early detection of neurodegenerative diseases and neurological injuries.
Downsides
Debt Profile: At the end of the second quarter of 2024, Labcorp had short-term borrowings and the current portion of the long-term debt of $2.02 billion, and cash and cash equivalents of $265.1 million. This raises our concern about the company’s ability to meet its immediate debt obligations.
Macroeconomic Risks: Labcorp’s operation is heavily dependent on the demand for diagnostic testing and drug development services. Volatilities in global economic conditions, including the present geopolitical tensions, could reduce the demand for these services, affecting the customers’ ability to pay and, consequently, the profitability of the company. In the second quarter, the cost of revenues went up by 4.7% year over year. SG&A expenses increased by 10.3%, mainly from higher personnel costs.
Estimate Trend
In the past 30 days, the Zacks Consensus Estimate for Labcorp’s 2024 earnings per share has moved 1% south to $14.69.
The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $12.93 billion, which suggests a 0.2% rise from the 2023 comparable figure.
TransMedix Group’s earnings are expected to surge 163.9% in 2024. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 287.5%. Its shares have soared 155.9% compared with the industry’s 11.8% rise in the past year.
Veracyte, sporting a Zacks Rank #1 at present, has an estimated earnings growth rate of 112.8% compared with the industry’s 11.8%. Shares of the company have soared 20.6% compared with the industry’s 12.3% rise over the past year.
VCYT’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 328.4%.
Boston Scientific, carrying a Zacks Rank #2 (Buy) at present, has an estimated earnings growth rate of 17.1% compared with the industry’s 15%. Shares of the company have rallied 56.5% compared with the industry’s 10.9% rise over the past year.
BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.2%.
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Should You Hold Labcorp (LH) Stock in Your Portfolio Now?
Laboratory Corporation of America Holdings (LH - Free Report) , or Labcorp, is poised for growth in the upcoming quarters due to its series of strategic acquisitions and partnerships. The company is nearing its targeted savings for the Launchpad business process improvement initiative by the end of 2024. Additionally, its strong emphasis on high-growth sectors like oncology, women’s health and neurology paves the way for substantial market gains.
Meanwhile, unfavorable solvency and the adverse impacts of macroeconomic challenges pose concerns for Labcorp’s operations.
In the past year, this Zacks Rank #3 (Hold) stock has risen 6.5% against the 3% fall of the industry and a 26.2% rise of the S&P 500 composite.
The renowned healthcare diagnostics company has a market capitalization of $18.95 billion. In the trailing four quarters, the company delivered an average earnings surprise of 2.8%.
Let’s delve deeper.
Factors at Play
Strategic Acquisitions and Partnerships to Drive Growth: Labcorp’s robust pipeline of potential hospital and local laboratory acquisitions presents ample opportunities for its growth. The company is advancing in terms of integrating hospital partnerships and acquisitions. Labcorp expects to close the acquisition of select BioReference Health Diagnostics business assets by the end of the third quarter, expanding its clinical diagnostics and women's health offerings.
The company won the bid for purchasing select assets of Invitae, approved by the United States Bankruptcy Court. Other notable deals include agreements with Baystate Health in Massachusetts, Providence’s outreach laboratory business in Northern California and Orange County and a regional lab in California. In addition, Labcorp teamed up with Hawthorne Effect to boost decentralized clinical trial capabilities.
LaunchPad Initiative Right on Track: Labcorp’s LaunchPad initiative is on track to deliver $100 million to $125 million of savings this year, consistent with its long-term target of $350 million by 2024. The initiative focuses on margin expansion, with the second-quarter operating income and margin fueled by the strong demand and savings from the program.
The company’s 2024-2026 guidance includes a savings target range of $100 million-$125 million annually. The benefits will be driven by rationalizing the geographic location of facilities and talent, leveraging technological advancements and structural enhancements, integrating acquisitions, and re-engineering the company’s systems and processes.
Advancements in High-Growth Areas: Labcorp is focusing more on key growth areas such as oncology, women’s health, autoimmune disease and neurology to drive expansion. The company’s strategy to develop and scale specialty testing, including companion diagnostics, is crucial to drive short-term growth. Its recent acquisition of Invitae assets showcases its robust business development pipeline and commitment to expanding specialty testing in oncology and rare disease areas.
Image Source: Zacks Investment Research
Among the developments in the second quarter, Labcorp Tissue Complete comprehensive genomic profiling (CGP) service was availed in Geneva and Shanghai to support global clinical trials. The integration of OmniSeq INSIGHT circulating tumor DNA expanded Labcorp’s leadership in liquid biopsy comprehensive genomic profiling for solid tumors.
The company launched the first-trimester screening test to assess preeclampsia risk during pregnancy, the only test of its kind available in the United States. A key milestone was the nationwide launch of the GFAP (glial fibrillary acidic protein) test — Labcorp’s unique offering designed for early detection of neurodegenerative diseases and neurological injuries.
Downsides
Debt Profile: At the end of the second quarter of 2024, Labcorp had short-term borrowings and the current portion of the long-term debt of $2.02 billion, and cash and cash equivalents of $265.1 million. This raises our concern about the company’s ability to meet its immediate debt obligations.
Macroeconomic Risks: Labcorp’s operation is heavily dependent on the demand for diagnostic testing and drug development services. Volatilities in global economic conditions, including the present geopolitical tensions, could reduce the demand for these services, affecting the customers’ ability to pay and, consequently, the profitability of the company. In the second quarter, the cost of revenues went up by 4.7% year over year. SG&A expenses increased by 10.3%, mainly from higher personnel costs.
Estimate Trend
In the past 30 days, the Zacks Consensus Estimate for Labcorp’s 2024 earnings per share has moved 1% south to $14.69.
The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $12.93 billion, which suggests a 0.2% rise from the 2023 comparable figure.
Key Picks
Some better-ranked stocks in the broader medical space are TransMedix Group (TMDX - Free Report) , Boston Scientific (BSX - Free Report) and Veracyte (VCYT - Free Report) .
TransMedix Group’s earnings are expected to surge 163.9% in 2024. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 287.5%. Its shares have soared 155.9% compared with the industry’s 11.8% rise in the past year.
TMDX sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Veracyte, sporting a Zacks Rank #1 at present, has an estimated earnings growth rate of 112.8% compared with the industry’s 11.8%. Shares of the company have soared 20.6% compared with the industry’s 12.3% rise over the past year.
VCYT’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 328.4%.
Boston Scientific, carrying a Zacks Rank #2 (Buy) at present, has an estimated earnings growth rate of 17.1% compared with the industry’s 15%. Shares of the company have rallied 56.5% compared with the industry’s 10.9% rise over the past year.
BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.2%.