LLabCorp: Reimbursement Scenario A Drag Amid Other Woes

On Jan 09, we issued an updated research report on Burlington, NC-based Laboratory Corporation of America Holdings LH or LabCorp. The company is a major player in the healthcare diagnostics space, providing comprehensive clinical laboratory services and end-to-end drug development support.

In major part of the past three months, LabCorp’s share price persistently traded below the Zacks categorized Medical - Dental Supplies industry. In fact, the underperformance stemmed particularly from the company's weak third-quarter 2016 results, wherein its earnings lagged the Zacks Consensus Estimate and revenues met the same. The company lost 7.02% over this period, compared with 1.99% loss of the broader industry. Nevertheless, the company has recorded a 5-year CAGR revenue of 11.9%, reflecting its strong growth fundamentals.

We note that, the current economic uncertainty including a challenging volume environment for testing laboratories and utilization weaknesses are looming headwinds. Also, unfavorable foreign exchange continues to be a major dampener for the company.

Besides, although, LabCorp believes that the Protecting Access to Medicare Act rule will have no impact on commercial pricing (with the exception of certain Medicare Advantage plans that are tied to the Medicare fee schedule), we still remain on the sidelines until further visibility is obtained on the matter.

Meanwhile, LabCorp continues to add complementary capabilities through meaningful acquisitions. Management believes that the recently completed buyout of Sequenom will boost the company’s women's health test menu. The inclusion is also expected to expand its geographic reach both domestically and internationally.

As part of its three strategic plans to drive growth, LabCorp is working on innovations in order to gain traction in the potential lab testing market with its advanced assays and tools. The company is focusing on extending its core testing capabilities such as Bode Cellmark Forensics, its leading DNA testing solutions business. Simultaneously, it is collaborating with leading companies and academic institutions to come up with a wider portfolio of tests. Recent instances are the strategic partnerships with Interpace Diagnostics, a developer of molecular diagnostics tests, alliance with Japan-based Sysmex Corporation – a leading clinical laboratory services provider – and Roche, the world's leading biotech company.

Zacks Rank & Key Picks

LabCorp currently carries a Zacks Rank #4 (Sell). Better-ranked medical stocks include ICU Medical Inc. ICUI, Align Technology, Inc. ALGN and NanoString Technologies, Inc. NSTG. ICU Medical sports a Zacks Rank #1 (Strong Buy) while NanoString Technologies and Align Technology carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ICU Medical gained 27.1% over the last one year compared to the S&P 500’s 18.5%. The company has an impressive long-term earnings growth of 20.5% compared to the industry average in the next five years.

NanoString Technologies surged 90.1% over the past one year, better than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 6.9%. 

Align Technology rallied 45.7% in the past one year, way better than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 23%.

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ICU Medical, Inc. (ICUI): Free Stock Analysis Report
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