Will LabCorp's (LH) Q2 Earnings Gain From Overall Growth?

Laboratory Corporation of America Holdings (NYSE:LH) also known as LabCorp is slated to report second-quarter 2019 results on Jul 25, before the market opens. In the last reported quarter, the company’s adjusted earnings exceeded the Zacks Consensus Estimate by 3.56%, the average trailing four-quarter beat being 0.67%.

Let's see how things are shaping up for this announcement.

Factors at Play

LabCorp’s underlying core business is currently putting up a stable performance. Within Diagnostcs, the company expects to generate revenues in the second quarter of 2019, banking on the following facts:

First, January 2019 marked the official collaboration with UnitedHealthcare, Horizon NJ and Aetna (NYSE:AET), placing LabCorp in-network under all major national plans. Ever since, after a dip in volume during the month, the company has been registering consistent organic growth on the back of these partnerships. This upside should get reflected in the company’s second-quarter results.

Second, although the company expects to gain a judicial and legislative relief from the second round of PAMA (Protecting Access to Medicare Act) price reductions, there is an increasing industry-wide awareness about PAMA's true impact. Owing to this, LabCorp believes to be offered a string of attractive tuck-in lab acquisition opportunities, which would typically deliver significant synergies and high returns on its invested capital.

Third, the company is highly optimistic about the Phase II of LaunchPad initiative in Diagnostics, which is expected to deliver $200 million of savings in another three years. This should contribute to the company’s operational results in the second quarter itself.

Within Covance Drug Development, LabCorp is focused on driving profitable growth through expanded solutions and enhanced operational capabilities. The Chiltern integration has significantly strengthened the company’s strategic position in clinical development and is accelerating revenues and profit growth within Covance. On this front, the company is keeping a good pace with its objective to streamline the drug development process. It is important to note that it is winning awards through its integrated Covance and Chiltern offering.

Additionally, the company has progressed with the Covance LaunchPad initiative. In the first phase, as expected, the company generated pre-tax savings of $20 million. At the exit of first-quarter 2019, it remained on track to deliver $150 million of net savings by the end of 2020. The company is also on course to realize $30 million in cost synergies from the consolidation of Chiltern by the end of 2019.

This apart, the innovative business swap transaction with Envigo is projected to contribute to the company’s top line in the second quarter. The transaction provides Covance with better global non-clinical research capabilities while maintaining access to a bigger research models and services through a multi-year renewable supply agreement.

All the above factors should together constantly favor the top line at LabCorp's Covance Drug Development in the yet-to-be reported quarter. Overall, the company expects 2019 Covance Drug Development revenue growth within 5-9%.

For 2019, on an overall basis, LabCorp envisions modest growth in total revenues and the adjusted EPS. The company expects another year of approximately $1 billion in free cash flow. These should get reflected in the second quarter itself.

What the Quantitative Model Suggests

The proven Zacks model conclusively shows that a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive Earnings ESP.

LabCorp has a Zacks Rank #2, which increases the predictive power of ESP. It also has an Earnings ESP of +3.56%, together which a likely positive surprise is predicted for the stock this earnings season.

The Zacks Consensus Estimate for second-quarter earnings of $2.53 indicates an 8.9% decline from the year-ago reported figure. Revenue estimate is pegged at $2.82 billion, suggesting a 0.86% slip from the prior-year reported number. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Other Stocks to Consider

Here are a few other medical stocks worth considering from the broader medical space as these too comprise the right mix of elements to exceed expectations this reporting cycle.

DENTSPLY SIRONA (NASDAQ:XRAY) has an Earnings ESP of +6.95% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher Scientific Inc. (NYSE:TMO) has an Earnings ESP of +0.54% and a Zacks Rank of 2.

Stryker Corporation (NYSE:SYK) has an Earnings ESP of +0.24% and is a Zacks #2 Ranked player.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +98%, +119% and +164% in as little as 1 month. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>