LabCorp (LH) To Report Q2 Earnings: What's In The Cards?

Laboratory Corporation of America Holdings LH, also known as LabCorp, is slated to report second-quarter 2022 results on Jul 28, before market open.

In the last reported quarter, the company's adjusted earnings of $6.11 exceeded the Zacks Consensus Estimate by 3.9%. The company beat estimates in each of the trailing four quarters, the average surprise being 17.58%.

Factors at Play

LabCorp has been registering an ongoing sales rebound in the base business for both Diagnostics and Drug Development segments. However, as the severity of the pandemic has declined, we expect the demand for COVID-19 testing services and vaccines to have been lower than the year-ago period, impacting the second-quarter sales performance.

Meanwhile, the company has implemented a new LaunchPad business process improvement initiative, which is anticipated to deliver $350 million in savings over the next three years. The new initiative is expected to have contributed to the company's second-quarter margin.

Covance Drug Development is likely to have benefited in Q2 from continued growth in the organic base business and a strong backlog of $15.2 billion at the end of the first quarter.

In terms of pandemic response, the company is constantly leveraging its comprehensive capabilities to expand access to COVID-19 testing, detect and monitor new variants, and advance vaccine and therapy development to prepare for future scenarios.However, during the Q1 earnings release, LabCorp noted that COVID-related vaccine work was lower than the year- ago period, with the largest impact taking place in the Clinical Trials Testing Solutions (CTTS) business that primarily consists of the company's central laboratories operations. This should get reflected in the Q2 results.

Within CTTS, as it is a global business, the company might get to see the adverse impact of global supply chain disruption due to the resurgence of the virus across a number of countries. Further, the company had expected thesecond quarter to be a little bit more difficult, impacted by the Ukraine war situation.

Earlier in 2022, LabCorp and Walgreens announced the nationwide availability of Pixel by Labcorp COVID-19 at-home collection kit to allow greater access to reliable, convenient testing services within communities. These initiatives are likely to have made significant contributions to the company's second-quarter performance.

In February 2022, LabCorp entered into a strategic agreement with Ascension, one of the largest health systems in the United States. The agreement enables Ascension to utilize LabCorp's scientific expertise, technology and scale in therapeutic areas like oncology, neurology and women's health and is likely to drive positive outcomes for the Drug Development segment.

The Zacks Consensus Estimate for Covance Drug Development segment's second-quarter revenues is pegged at $1.56 billion, indicating a rise of 4.5% from the prior-year quarter's figure.

Within LabCorp Diagnostics, base business organic volume is anticipated to have continued its rally, led by consistent growth in esoteric and routine procedures. However, a slowdown in COVID-19 testing is likely to have hampered sales performance within the segment. In this regard, in the first quarter, in terms of COVID-19 testing, rates dropped in Q1 and LabCorp expected the decline to continue for the remainder of 2022. In spite of the rising number of COVID-19 cases in various countries, we believe LabCorp might once again report a year-over-year decline in testing rates during its Q2 earnings release.

In terms of base business, within Oncology, LabCorp's recent acquisition of PGDx is expected to have contributed to the to-be-reported quarter's top line. PGDx's portfolio of liquid biopsy and tissue-based products enhances the company's oncology capabilities.

Added to this, in April, LabCorp collaborated with Xcell Biosciences, as part of which the companies together will work on a series of projects focused on improving the safety and efficacy of cell and gene therapies. Further, the company collaborated with AtlantiCare, the largest health care organization in southern New Jersey. Both these developments are expected to have positively contributed to the company's Diagnostics arm in the second quarter.

The Zacks Consensus Estimate for LabCorp Diagnostics' second-quarter revenues is pegged at $2.27 billion, lower than the year-ago quarter's reported figure of $2.37 billion.

Key Q2 Estimates

The Zacks Consensus Estimate for second-quarter earnings of $4.60 per share implies a 24.6% plunge from the year-ago reported figure. The consensus estimate for revenues is pegged at $3.80 billion, suggesting a 1.1% fall from the prior-year reported number.

What Our Model Suggests

Per our proven model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has higher chances of beating estimates. However, this is not the case here, as you can see:

Earnings ESP: The company has an Earnings ESP of -0.05%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3.

Stocks Worth a Look

Here are some medical stocks worth considering as these have the right combination of elements to post an earnings beat this quarter.

BrainsWay Ltd. BWAY has an Earnings ESP of +33.33% and a Zacks Rank of 2.

BrainsWay's 2023 earnings growth rate is estimated to be 16.7%. BWAY's 2023 revenues are expected to growth 17.1% from 2022.

Alcon Inc. ALC has an Earnings ESP of +5.07% and a Zacks Rank of #2.

Alcon long-term earnings growth rate is estimated at 14.3%. ALC's earnings yield of 3.41% compares favorably with the industry's (8.09%).

QuidelOrtho Corporation QDEL currently has an Earnings ESP of +9.17% and a Zacks Rank of #2.

QDEL's earnings yield of 14.83% compares favorably with the industry's (-2.63%).
 
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