Laboratory Corporation of America Holdings (LH) will be present at the upcoming Barclays Capital 2012 Global Healthcare Conference in Miami Beach, Florida, on March 14, 2012. The company will be represented by its CEO David P. King at the conference.
Economic uncertainty is affecting LabCorp’s volume, which is palpable in the continuous decline in organic growth witnessed over the past few quarters. Organic growth was a modest 0.7% in the latest quarter (sliding from 3% in the first, 2% in the second and 1.2% in the third quarter of fiscal 2011).
With no significant job growth in the economy or an increase in commercially insured covered lives, the company’s overall volume growth will continue to languish until the economy rebounds. We expect the company to provide an update on the current environment and the various strategies adopted by it to counter the situation in the meet at Miami.
The North Carolina-based company is aiming at increasing its revenues from esoteric testing over the next few years. Riding on the acquisitions of Monogram Bioscience and Genzyme Genetics, LabCorp derives approximately 40% of revenues from genomic, esoteric and anatomic pathology categories, which can confidently climb to 45% in the next 3-5 years.
This specialized niche is now a much sought-after avenue for top-line growth, and its arch rival Quest Diagnostics (DGX) is also engaged in strategic acquisitions to bolster its esoteric testing portfolio.
Meanwhile, LabCorp has strengthened its foothold in the diagnostics space through both organic and inorganic means and plans to collaborate with leading companies and academic institutions to provide a wider portfolio of tests. We expect the company to provide the current status on the integration process of the latest acquisitions and the synergies to be amassed.
With regard to business collaborations with Managed Care Organizations (“MCOs”), LabCorp is doing a good job. The company has renewed some significant MCO contracts and is working to improve services. Besides a few stray cases, the company found the managed care environment to be relatively stable with respect to pricing and does not expect downward pricing pressure in contract renewals. The company might discuss about the current status of contract renewals.
Considering the cases, for and against, we have a Neutral recommendation on LabCorp. The stock retains a Zacks #3 Rank (Hold) in the short term.
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