Laboratory Corporation of America Holdings (LH) reported adjusted earnings per share (EPS) of $1.16 for the fourth quarter, which surpassed the Zacks Consensus Estimate of $1.15 and $1.10 reported in the year-ago period. Revenues recorded a 3.4% year-over-year increase to $1.16 billion. For the full year of 2009, revenues and EPS came in at $4.7 billion and $4.89, respectively.
 
During the reported quarter, there was a 0.9% decline in testing volume (measured by accessions) while revenue per accession increased 4.3%. Several reasons were responsible for the decline in volume. These include the termination of two large government contracts (leading to a 1.5% decline), lower drugs of abuse testing business (0.4%) and weather (0.3%).
 
LabCorp’s gross margin (40.8%) and operating margin (18.52%) reported a marginal improvement compared to the year-ago period.
 
At the end of 2009, LabCorp had $148.5 million of cash and short term investments, higher than the $219.7 million at the end of December 2008. Free cash flow position improved significantly to $747.7 million at the end of the reported quarter compared to $624.2 million in the corresponding year-ago period. LabCorp had $75 million remaining under its $500 million revolving credit facility.
 
To enhance shareholder value, the company repurchased $273.5 million of stock representing approximately 3.9 million shares during 2009 with another $71.8 million of repurchase authorization remaining under its buyback plan. In addition, the company announced a new $250 million of stock repurchase program.
 
In addition, LabCorp has provided its guidance for 2010. The company expects EPS in the range of $5.35–$5.55 with a 2.5%-4.5% growth in revenues, in line with the Zacks Consensus Estimate of $5.44.
 
We believe demand in the clinical testing market should continue to grow due to the increase in aging population, increased recognition of the value of more specialized and sophisticated tests and the low-cost benefits of testing to improve health. We have a Neutral recommendation on the stock.
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