Recently, we reiterated Neutral recommendation on Laboratory Corporation of America Holdings (LH) with a target price of $105.
LabCorp reported an adjusted EPS of $1.52 (excluding amortization, restructuring and other special charges) for the first quarter of fiscal 2011. That was way above the Zacks Consensus Estimate of $1.44 and the previous year's adjusted EPS of $1.40.
Revenues increased 14.6% year over year to $1,368.4 million, ahead of the Zacks Consensus Estimate of $1,325 million. Testing volume (measured by requisitions) and revenue per requisition increased 5.9% and 8.2%, respectively. Results for the reported quarter include the operations of Genzyme Genetics, acquired in the fourth quarter of 2010.
Genzyme Genetics accounted for approximately 1% of the company’s volume growth and 6.5% of the growth in revenue per requisition. Organic volume growth for the company was 3%. While volume from esoteric testing increased 11% (7% excluding Genzyme Genetics), drugs-of-abuse testing increased 14% year over year during the quarter.
LabCorp is focusing on the IT initiatives to improve physician and patient experience. LabCorp Beacon is the company’s new online gateway for client lab connectivity to easily share information within a provider practice and with other providers.
The company has already incorporated Genzyme Genetics result delivery into the Beacon platform. Moreover, LabCorp is implementing automation in its laboratories, which will enable it to reduce cost structure and increase throughput thereby redirecting personnel to cater to customer needs.
During the first quarter, 40% of revenues came from genomic, esoteric and anatomic pathology categories, an area of focus at present. Banking on the acquisition of Genzyme Genetics, LabCorp expects to record about 45% of its revenues from these businesses in the next 3-5 years.
However, economic uncertainty affects physician office visits, thereby impacting LabCorp’s volume. Although the situation has been improving, any hiccup in the recovery process could be a dampener for the stock.
In addition, the company has witnessed efforts on the part of the government to control reimbursement of healthcare services including clinical testing. Moreover, competition is tough with the presence of Quest Diagnostics (DGX).
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