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Labcorp Stock Gains From Market Expansion Efforts Amid Macro Woes

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Labcorp Holdings, Inc. (LH - Free Report) has been benefiting from the solid execution of its strategic priorities. Investments in targeted high-growth areas are expected to continue the momentum. The company faces headwinds from macroeconomic uncertainties and growing foreign exchange issues. The stock carries a Zacks Rank #3 (Hold) currently.

Factors Driving LH Stock

As part of its expansion efforts, Labcorp is focusing more on key growth areas such as oncology, women’s health, autoimmune disease and neurology. The company’s ability to develop, license and ultimately scale specialty testing, including companion diagnostics, can be pivotal in significantly driving near-term growth. Labcorp has consistently reinforced its position as a preferred partner for health systems and regional local laboratories. New deal announcements, such as purchasing assets of Invitae, showcase its robust business development pipeline and also further its strategy to launch and scale specialty testing in oncology and rare diseases areas.

Furthermore, the company is well-placed for long-term success in Cell & Gene Therapy, expanding into the consumer market and international growth through the specialty testing and biopharma business. In June 2024, 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.

LabCorp’s Biopharma business is benefiting from collaborations with leading pharmaceutical and biotechnology companies with whom it started to work on potential antivirals, treatments and vaccines. Revenue-wise, Biopharma's growth continues to be driven by strength in central laboratories, its largest part, which improved 9% in the second quarter of 2024. The Early Development business is also recovering sequentially, led by reduced cancellations and improvement in bookings, and is expected to generate higher revenues in the second half of the year.

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 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. In the second quarter, the rise in operating income and margin was fueled by strong demand and LaunchPad savings.

The stock has risen 11.1% in the past three months against the industry’s 2.7% decline. With the company strategically expanding in high-growth areas, as well as putting focus on cost-saving initiatives, we expect the stock to continue its upward movement in the coming days.

Factors Weighing on LH Stock

Labcorp’s operation is heavily dependent on the demand for diagnostic testing and drug development services from patients, physicians, hospitals, medical device companies and others. Volatilities in global economic conditions, including inflation and the risk of short or long-term recession, could reduce the demand for these services, affecting customers’ ability to pay and, consequently, the profitability of the company.

Added to this, the escalation of the present geopolitical situations in Ukraine and the Middle East can potentially decrease testing volumes, cause disruptions in the supply chain and services and increase the prices of offerings. In the second quarter, the cost of revenues went up 4.7% year over year. SG&A expenses increased 10.3%, mainly due to higher personnel costs.

Labcorp's huge exposure in international markets makes it vulnerable to currency fluctuations. In 2023, the BLS segment derived nearly 58% of its revenues from overseas, while Dx also earned a modest portion in Canada and a relatively small amount in the rest of the world. An approximate 13.7% of the company's revenues were denominated in currencies other than the U.S. dollar in the first half of 2024.

With the recent upward trend observed in the value of the U.S. dollar, further acceleration is expected by analysts in this value, which will cause the company’s revenues to face a tough situation overseas. In the second quarter, both BLS and Dx revenue growth was partially offset by unfavorable foreign currency translation of 0.1%.

Key Picks

Some better-ranked stocks in the broader medical space are Intuitive Surgical (ISRG - Free Report) , TransMedics Group (TMDX - Free Report) and Quest Diagnostics (DGX - Free Report) . While Intuitive Surgical and TransMedics currently sport a Zacks Rank #1 (Strong Buy) each, Quest Diagnostics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical’s shares have surged 60.5% in the past year. Estimates for the company’s earnings have moved 5.1% north to $1.65 per share for 2024 in the past 30 days.

ISRG’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 8.97%. In the last reported quarter, it posted an earnings surprise of 16.34%.

Estimates for TransMedics’ 2024 EPS have moved up 125% to 27 cents in the past 30 days. Shares of the company have soared 135.2% in the past year compared with the industry’s 14.9% growth.

TMDX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 287.50%. In the last reported quarter, it delivered an earnings surprise of 66.67%.

Estimates for Boston Scientific’s 2024 EPS have increased 1.7% to $2.40 in the past 30 days. In the past year, shares of BSX have risen 55.5% compared with the industry’s 17.9% growth.

In the last reported quarter, BSX delivered an earnings surprise of 6.90%. Its earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.18%.

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