LabCorp Outshines Estimates - Analyst Blog
21 Julio 2011 - 11:15AM
Zacks
Leading lab-testing company
Laboratory Corporation of America Holdings (LH)
reported adjusted EPS of $1.64 (excluding amortization,
restructuring and other special charges) for the second quarter of
fiscal 2011.
That result was higher than the
Zacks Consensus Estimate of $1.62 and the previous year's adjusted
EPS of $1.56.
Revenues increased 13.3% year over
year to $1,403.3 million, ahead of the Zacks Consensus Estimate of
$1,398 million. Testing volume (measured by requisitions) and
revenue per requisition increased 4.8% and 8.1%, respectively.
Gross margin during the quarter
declined 120 basis points to 41.9%. Moreover, a 31.5% rise in
selling, general and administrative expenses led to a 190-basis
point decline in adjusted operating margin to 19.9%. LabCorp’s
interest expense increased 44.8% during the quarter due to a higher
debt burden.
The company had raised $925 million
in November 2010, primarily to fund the acquisition of Genzyme
Genetics. With the acquisition of Genzyme Genetics, LabCorp expects
to strengthen its esoteric testing and personalized medicines
business.
In April 2011, LabCorp decided to
acquire Orchid Cellmark (ORCH) for $2.80 per share
in cash or a total of $85.4 million. After taking into account
Orchid Cellmark’s cash balance LabCorp’s net payable comes to $65.6
million. Orchid Cellmark provides DNA testing services targeted
towards forensic investigation and family relationship status on a
global basis. Based on this deal, LabCorp will be able to develop a
command over identity testing in the US and also establish its
presence in this field in the UK.
LabCorp exited the quarter with cash
and short-term investments of $118.9 million, compared to $230.7
million at the end of December 2010. During the quarter, the
company repurchased 0.6 million shares for $60.5 million and was
left with $408.5 million of authorization.
Outlook
LabCorp reiterated its revenue
guidance (9.5%-11.5% growth) for fiscal 2011. Moreover, its
adjusted EPS guidance of $6.17−$6.32 remains unchanged. In
addition, operating cash flow and capital expenditure is expected
to be $900 million (excluding Hunter Labs settlement) and $150
million, respectively.
Recommendation
LabCorp continues to focus on
strategic initiatives to drive growth and profitability. It
includes introduction of innovative tests in the genomic/esoteric
arena (specifically in the area of cancer), a greater focus on
managed care organizations, and aggressive penetration into the
hospital market. The company is focusing more on the high margin
esoteric testing business, and has set a target of recording 45% of
its revenues from this specialty business in the next 3-5
years.
However, the tough competitive
landscape is of primary concern, and the leading diagnostic players
are all striving for a greater share in the high margin,
specialized testing business. In this regard, Quest
Diagnostics (DGX) recently acquired Athena Diagnostics,
which engages in diagnostic tests for neurological
conditions.
We currently have a Neutral
recommendation on the stock, which also corresponds to the Zacks #3
Rank (Hold).
QUEST DIAGNOSTC (DGX): Free Stock Analysis Report
LABORATORY CP (LH): Free Stock Analysis Report
ORCHID CELLMARK (ORCH): Free Stock Analysis Report
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