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Income, Stocks  | January 15, 2020

Shares of Laboratory Corporation of America Holdings LH or LabCorp reached a new 52-week high of $179.35 on Jan 13, closing the session marginally lower at $179.22. The stock has rallied 9.1% since its third-quarter earnings announcement on Oct 24.

The company witnessed strong third-quarter results, backed by the focus on high-growth priorities — including expansion through acquisitions and partnerships — as well as broadening of the product line. Its strong underlying performance prompted the uptrend.

Let us delve deeper.

Q3 Performance

LabCorp ended the third quarter of 2019 on a strong note, with better-than-expected results. It witnessed year-over-year revenue improvements in both business segments. The company is upbeat about strong underlying performance and organic revenue growth across both Diagnostics and Drug Development businesses. It is banking on solid execution of three fundamental strategies — delivering advanced diagnostics, bringing new medicines to patients faster and using technology to improve patient care.

Over and above, the company’s revised guidance for 2019 indicates that it will be able to maintain its ongoing bullish momentum in the fourth quarter as well.

Other Key Drivers

Partnerships: Investors are optimistic about LabCorp’s slew of partnerships, the latest one being that of an innovative business swap transaction with Envigo, a provider of non-clinical contract research services and research models. Per the terms of the agreement, LabCorp purchased Envigo's non-clinical contract research service business in exchange of the sale of the Covance Research Products business. Among other partnerships, the ones with UnitedHealthcare and Aetna are significant.

This apart, acquisition of the diagnostic clinical laboratory testing business of South Bend Medical Foundation (“SBMF”) significantly enhanced LabCorp’s opportunity to serve the local hospitals, physicians and patients in various regions of Indiana, Michigan, Ohio and Illinois.

Covance Drug Development (CDD) Arm: Investors are optimistic about the recent performance of LabCorp’s CDD arm. The company is leaving no stone unturned to expand its range of diagnostic offerings to strengthen its position. It is aggressively enhancing CDD through acquisitions like that of MI Bioresearch, which is likely to enable CDD to move from preclinical to clinical development. LabCorp’s plan of acquiring Regulatory and Clinical Research Institute (RCRI) further buoys optimism. In 2020, LabCorp is also expected to benefit from the integration of Chiltern.

LaunchPad in Diagnostics: The company made impressive strides in the Covance LaunchPad initiative in the third quarter, which may help it maintain the ongoing momentum. Its recently launched Phase II of LaunchPad initiative in the Diagnostics arm is expected to generate savings. Phase II of LaunchPad is expected to streamline LabCorp’s business and help it grow.

Zacks Rank & Key Picks

Currently, LabCorp carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader medical space are Haemonetics Corporation HAE, Hill-Rom Holdings, Inc HRC and Medtronic plc MDT.

Haemonetics, currently flaunting a Zacks Rank #1 (Strong Buy), has a projected long-term earnings growth rate of 13.5%.

Hill-Rom’s long-term earnings growth rate is estimated at 11.7%. The company currently carries a Zacks Rank #2 (Buy).

Medtronic’s long-term earnings growth rate is estimated at 7.4%. It currently carries a Zacks Rank #2.

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