LabCorp Grapples With Reimbursement Cuts, Stiff Competition

On Jan 2, we issued an updated research report on LabCorp (NYSE:LH) . The stock carries a Zacks Rank #4 (Sell).

This Burlington, NC-based healthcare diagnostics company, providing comprehensive clinical laboratory services and end-to-end drug development support, has been grappling with multiple issues of late. Economic uncertainties, including a challenging volume environment for testing laboratories and softness in utilization, are looming headwinds for LabCorp.

Changes in governmental regulations had a significant impact on LabCorp’s operations. The company raised certain objections in response to the Sep 22 publication by the Centers for Medicare and Medicaid Services (CMS) of proposed 2018 Medicare reimbursement rates for clinical laboratory tests under the Clinical Lab Fee Schedule (CLFS) mandated by the Protecting Access to Medicare Act (PAMA).

Also, if the latest clinical lab fee schedule draft by CMS gets implemented without any amendment in favor of testing laboratories, the projected growth at LabCorp’s Covance, the benefit from Chiltern, the benefit from PAML and Mount Sinai and the Covance LaunchPad process will all be adversely impacted.

Moreover, LabCorp faces intense competition from other commercial laboratories and hospitals. In a $55-billion U.S. lab market, hospitals control an estimated 55% of the diagnostic test market, compared to LabCorp’s 10% share. While pricing is an important factor in choosing a testing lab, hospital-affiliated physicians expect a high level of service, including accurate testing results. As a result, LabCorp and other commercial labs compete with hospital-affiliated labs primarily on the basis of quality of service.

On a positive note, LabCorp's Diagnostics business continues to remain strong on improving price, mix, acquisition and favorable foreign exchange. Also, after several quarters of dull show, Covance Drug Development reported strong growth on the back of Chiltern acquisition, strong organic growth and favorable foreign currency translation. Also, over the past six months LabCorp has been trading above the broader industry. The stock has gained 7.1% as against the industry’s 0.5% fall.

Key Picks

A few better-ranked medical stocks from the same space are Bio-Rad Laboratories, Inc. (NYSE:BIO) , Walgreens Boots Alliance, Inc. (NASDAQ:WBA) and Integer Holdings Corporation (NYSE:ITGR) .

Bio-Rad Laboratories flaunts a Zacks Rank #1 (Strong Buy). The company has a long-term expected earnings growth rate of 25% and has gained 6.2% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Walgreens Boots has a long-term expected earnings growth rate of 10.1%. The stock carries a Zacks Rank #2 (Buy) and has gained 3.2% year to date.

Integer Holdings has a long-term expected earnings growth rate of 15%. The stock carries a Zacks Rank #2 and has gained 4.6% over the past six months.

Investor Alert: Breakthroughs Pending

A medical advance is now at the flashpoint between theory and realization. Billions of dollars in research have poured into it. Companies are already generating substantial revenue, and even more wondrous products are in the pipeline.

Cures for a variety of deadly diseases are in sight, and so are big potential profits for early investors. Zacks names 5 stocks to buy now.

Click here to see them >>