On Nov 30, 2015, we issued an updated research report on Laboratory Corporation of America Holdings LH, a leading independent clinical laboratory company. LabCorp’s consolidated third-quarter earnings, post the acquisition of Covance, barely managed to meet the mark although revenues exceeded expectations. The company is currently working on portfolio expansion and is focusing more on the high-margin esoteric testing business to drive its top line.
According to the company, this has been a strong quarter with respect to sturdy organic revenue growth and operating leverage. Both esoteric and core testing witnessed solid growth.
With the acquisition of Covance, which is now operational as Covance Drug Development, LabCorp expects to expand the company’s range of diagnostic offerings and create a new industry leader in both the laboratory testing and CRO spaces. The combined company will act as a leading provider of medical testing apart from operating as a premier full-service drug development organization.
Earlier, the company had set a goal of $150 million in incremental revenues by the end of 2018 ($100 million for companion diagnostics and $50 million for real world evidence). The company currently is on track to achieve the incremental revenue synergy. LabCorp expects this transaction to be accretive to adjusted earnings per share in 2015 before synergies.
LabCorp has also 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.
Recently, the company entered into a strategic partnership with Japan-based Sysmex Corporation – a leading clinical laboratory services provider. Under the terms of the collaboration, SysmexInostics – a subsidiary of Sysmex Corporation – will offer reagents and associate services to LabCorp that will enable Covance’s central labs to perform molecular genetic analyses to facilitate clinical trials in oncology. The company also signed a strategic agreement with biotechnology company ORIG3N, a leading provider of induced pluripotent stem cell (iPSC) repository, called LifeCapsule. Per the collaboration, LabCorp will allow ORIG3N’s LifeCapsule to be stored at its biorepository facilities.
Also, as part of its five-pillar strategy, LabCorp is currently working hard on new innovations with academic institutions in order to capture the growing lab testing market with its advanced assays and tools.
However, the current economic uncertainty remains a deterrent for LabCorp. The strengthening of the dollar continues to weigh on year-over-year revenue performance. Moreover, we are concerned about the Medicare payment reductions, the recent-introduced molecular pathology codes and the implementation of sequestration.
LabCorp currently carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Other medical instruments stocks that are worth a look include Align Technology Inc. ALGN, AmerisourceBergen Corporation ABC and Cardinal Health, Inc. CAH. All these stocks also carry a Zacks Rank #2.
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