Laboratory Corp. of America Holdings (LH), or LabCorp, is scheduled to release its third-quarter 2014 results before the opening bell on Oct 28. Last quarter, LabCorp had posted a positive earnings surprise of 3.95%. However, the trailing four-quarter average earnings miss is pegged at 1.18%. Let's see how things are shaping up for this announcement.
Factors at Play
The current economic uncertainty continues to adversely affect LabCorp. The challenging volume environment for testing laboratories and utilization weaknesses pose as looming headwinds. Although in the last reported quarter, volume increased 5% (on a per day basis), organic volume growth was low. Moreover, revenue per requisition was down 2%, reflecting a still difficult volume environment.
We are also concerned about the Medicare payment reductions and the implementation of sequestration. Margins still remain under pressure. Although the share repurchase activity provided some cushion for the company’s bottom line, the still sluggish revenue outlook for 2014 implies that the industry trend is not likely to improve in the near future.
Nonetheless, LabCorp is leaving no stone unturned to consolidate operations and realize potential synergies. As part of its 5-pillar strategy, LabCorp is currently working hard on innovations in association with academic institutions to capture the growing lab testing market with its advanced assays and tools. Despite near-term challenges due to reimbursement issues, the company remains focused on portfolio expansion to drive its top line. LabCorp is emphasizing particularly on the high-margin esoteric testing business, which is expected to contribute 45% of total sales in the next 3-5 years.
Further, 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. In addition, the acquisition pipeline garners attention.
Earnings Whispers?
Our proven model does not conclusively show that LabCorp is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: LabCorp's earnings ESP is -0.57%, since the Most Accurate estimate stands at $1.74 while the Zacks Consensus Estimate is pegged higher at $1.75.
Zacks Rank: LabCorp's Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Hospira Inc. (HSP), earnings ESP of +7.55% and a Zacks Rank #3. Hospira is expected to report third-quarter 2014 earnings on Nov 6.
Hologic Inc. (HOLX), earnings ESP of +5.41% and a Zacks Rank #3. Hologic will be reporting its fourth-quarter earnings on Nov 5.
Heartware International Inc. (HTWR), earnings ESP of +21.21% and a Zacks Rank #3. Heartware International will report its third-quarter fiscal 2014 earnings on Oct 30.
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