LabCorp Maintained at Neutral - Analyst Blog
March 07 2013 - 7:40AM
Zacks
We recently reiterated our Neutral
recommendation on Laboratory Corporation of America
Holdings (LH), the second largest independent clinical
laboratory company in the U.S. While we are confident about the
company garnering higher revenues from specialized testing, its
stable liquidity position and value added acquisitions, concerns
linger around the overall soft industry trends leading to low
organic volume. The stock currently carries a Zacks Rank #3
(Hold).
Why at
Neutral?
LabCorp posted dismal
fourth-quarter 2012 results with adjusted earnings per share (EPS)
of $1.54 missing the year-ago number by 1.3% as well as the Zacks
Consensus Estimate of $1.61.Although revenues increased 2.9%, a
mere 2.8% increase in testing volume and a slight increase of 0.7%
in organic volume growth reflect the low-volume-growth environment.
Also, Hurricane Sandy negatively impacted the company’s performance
in the fourth quarter.
Moreover, concerns linger regarding
the on-going reimbursement cut. The government has been attempting
to control reimbursement of healthcare services including clinical
testing. Changes in governmental regulations will have a
significant impact on LabCorp’s operations in 2013. According to
LabCorp, this reduction will negatively impact 2013 revenue by over
$50.0 and earnings per share by approximately $0.35.
However, we are encouraged to note
that LabCorp recorded approximately 40% of total revenues during
the last reported quarter from the genomic, esoteric and anatomic
pathology categories, which is expected to go up to 45% over the
next 3−5 years. The esoteric volume during the quarter increased
3.5% on the back of decent growth in specialized endocrinology and
coagulation businesses, cardiovascular and chronic kidney disease
programs.
As a result, the company is
continuously launching several new tests and has collaborated with
major companies and academic institutions to develop advanced
tests. Given its continuous focus on portfolio expansion, we are
confident about the company garnering higher revenues from
specialized testing, going forward.
Other Stocks to
Consider
While we prefer to remain on the
sidelines on LabCorp, other medical device stocks worth a look are
Cyberonics Inc. (CYBX), Medical Action
Industries Inc. (MDCI) and Given Imaging
Ltd. (GIVN). All these stocks carry a Zacks Rank #1
(Strong Buy).
CYBERONICS INC (CYBX): Free Stock Analysis Report
GIVEN IMAGING (GIVN): Free Stock Analysis Report
LABORATORY CP (LH): Free Stock Analysis Report
MEDICAL ACTION (MDCI): Free Stock Analysis Report
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