LabCorp Beats, Boosts Outlook – Analyst Blog

Leading lab-testing company Laboratory Corporation of America Holdings (LH) reported better-than-expected second-quarter fiscal 2010 results with adjusted (excluding restructuring and other special charges) earnings per share of $1.46 beating the Zacks Consensus Estimate of $1.42 and the year-ago earnings of $1.30.

 

The year-ago quarter earnings were impaired by restructuring and special charges of $10.2 million. Net income leapt 12.7% year over year to $153.7 million on the back of higher sales that beat expectations. 

 

Revenues rose 4.2% year over year to $1,238.4 million, ahead of the Zacks Consensus Estimate of $1,226 million. Testing volume (measured by accessions) dipped 2% while revenue per requisition increased 6.3%. The lingering impact of the termination of two major government contracts in 2009 contributed to the volume decline. Excluding this impact, volume would have increased 0.3% during the quarter.

 

LabCorp exited first-half fiscal 2010 with cash and short-term investments of $103.8 million, a 54% year- over-year decline. The company had $30 million outstanding under its $500 million revolving credit facility. LabCorp continues its share buy back initiatives as it repurchased roughly 1.5 million shares during the quarter for roughly $116 million.

 

The company generated and operating cash flow of $448.2 million (up 14.5%) in the first-half including $216.2 million in the second quarter. Operating cash flow for the quarter excludes a transition payment of $2.1 million to UnitedHealthcare (UNH). Free cash flow for the first-half improved 15.5% year over year to $389.2 million boosted by higher cash flow from operation.

 

LabCorp has raised its revenue and earnings forecasts for 2010. The company now expects roughly 4.5%-5.5% growth in revenues versus its earlier guidance of 2.5%-4.5%. Adjusted EPS target has been raised to $5.40-$5.55 from $5.35–$5.55. The current Zacks Consensus Estimate for 2010 is $5.45, reflecting an 11.51% annualized growth. LabCorp expects to generate $870 million in operating cash flow (excluding transition payments) and spend $135 million on capital expenditure, both kept unchanged.

 

LabCorp is one of the leading independent clinical laboratory companies in the U.S. The company faces intense competition from its major competitor Quest Diagnostics (DGX) and other commercial laboratories and hospitals.

   

We believe demand in the clinical testing market should continue to grow due to the increase in aging population, increased recognition of value of more specialized and sophisticated tests and the low-cost benefits of testing to improve health. We currently have a Neutral recommendation on LabCorp.