LabCorp a Penny Ahead, Misses Sales - Analyst Blog
20 Octubre 2011 - 11:37AM
Zacks
Leading lab-testing company Laboratory Corporation of
America Holdings (LH) reported adjusted EPS of $1.61
(excluding amortization, restructuring and other special charges)
for the third quarter of fiscal 2011. The result was higher than
the Zacks Consensus Estimate of $1.60 and the previous year's
adjusted EPS of $1.58.
Revenues increased 10% year over year to $1,404.5 million,
marginally missing the Zacks Consensus Estimate of $1,408 million.
Testing volume (measured by requisitions) and revenue per
requisition increased 2.1% and 7.8%, respectively.
Gross margin during the quarter declined 80 basis points (bps)
to 40.5%. Adjusted operating margin remained almost flat at 20.3%
despite a 4.9% rise in selling, general and administrative
expenses.
LabCorp exited the quarter with cash and short-term investments
of $85.8 million, compared with $230.7 million at the end of
December 2010 and without any outstanding borrowing under the $500
million revolving credit facility. Operating cash flow for the
quarter was $176.8 million and was reduced by $49.5 million due to
the Hunter Labs settlement.
The company has been using its cash balance to make strategic
acquisitions as well as reward its shareholders through share
repurchases. During the quarter, LabCorp repurchased 1.8 million
shares for $152 million and was left with $256.5 million of
authorization. The company is in the process of acquiring
Orchid Cellmark (ORCH), for which the current
tender offer exists till November 4, 2011.
In May 2011, LabCorp had received a request from the Federal
Trade Commission (FTC) for some additional information related to
the transaction. LabCorp is cooperating with the FTC on this issue.
To date, about 87.2% of the outstanding shares of Orchid have been
tendered. 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.
Outlook
LabCorp updated its guidance for fiscal 2011. The company now
expects a 10.5−11% revenue growth (previous guidance of 9.5−11.5%)
resulting in adjusted EPS of $6.28−$6.33 ($6.17−$6.32) in fiscal
2011. In addition, operating cash flow and capital expenditure is
expected to be $900 million (excluding Hunter Labs settlement) and
$150 million, respectively.
Recommendation
LabCorp has of late put more and more emphasis on specialized
testing. Towards this end, the company undertook a number of
acquisitions notable among which are Monogram Bioscience (August
2009) and Genzyme Genetics (December 2010). LabCorp has set a
target of garnering 45% of its revenues from the specialty business
in the next 3-5 years.
Moreover, LabCorp has been reporting growth in testing volume as
well as revenue per requisition over the past few quarters. This
was possible based on acquisitions, rate increases, test mix shift
and increase in test per requisition.
However, the tough competitive landscape is of primary concern,
and the leading diagnostic players including Quest
Diagnostics (DGX) are all striving for a greater share of
the pie in the high-margined, specialized testing business. We
currently have a Neutral recommendation on both LabCorp and Quest
Diagnostics, which carry the short-term Zacks #3 Ranks (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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