LabCorp (LH) Leads S&P 500 Laggards with Disappointing Outlook

Andrew Klips  |

Shares of Laboratory Corporation of America Holdings (LH) paced the losers on the S&P 500 on Wednesday as the blue chip index slipped 20 points lower to 1,7822.  The 11-percent decline in LabCorp shares to $88.25 was the largest one-day loss for the stock since March 2007. On November 15, shares of LH hit an all-time high of $108.00.

The Burlington, North Carolina-based medical diagnostics company said after Tuesday’s closing bell that it is on pace for 2013 adjusted earnings in the range of $6.90 and $7.05 per share, in line with analyst expectations of EPS of $7.02. The earnings report for the fourth quarter and full-year 2013 is slated to be announced on February 7, 2014.

2014 Guidance Lowered on Uncertainty

The catalyst for the sell-off was LabCorp’s guidance for 2014 that missed analyst expectations by a long shot. LabCorp sees 2014 full-year adjusted earnings around $6.50 per share. Wall Street was calling for profits of $7.54 per share. LabCorp’s estimate doesn’t include any impact of possible share repurchases during the year.

Revenue is expected to edge up by 2 percent in 2014. LabCorp, which provides in excess of 4,000 clinical tests, cited many reasons for its conservative outlook, including a muted utilization environment, continued increases in Americans with high deductible and high co-pay insurance plans, issues with government payment and reimbursement, and uncertainty related to the Affordable Care Act, more commonly known as “Obamacare.”

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“We continue to operate in a very difficult environment,” said David P. King, chairman and CEO of LabCorp, in a statement. King is still upbeat about the company’s five-pillar strategy to rejuvenate its core operations, but investors weren't sold so easily.

Biotech Shares Drop

Rivals took their lumps alongside LabCorp in Wednesday action as concerns arose about the industry in general going forward. Quest Diagnostics (DGX) lost 5.8 percent to $55.20, closing in on a one-year low of $54.34. BioReference Laboratories (BRLI) dropped 3 percent to $26.97. Shares of BRLI plunged about 22 percent two weeks ago and have continued to slide after with a weak guidance for the current quarter of 40 cents per share in adjusted profits, against analyst calls for 55 cents EPS. BioReference blamed reimbursement rates and Obamacare as reasons for negative pressures as well. Test maker Hologic (HOLX) didn’t buck the trend Wednesday either, fading 2 percent to $21.77.

Diagnostic companies aren’t getting much love from Wall Street and may not until all the nuts are turned to tighten up the revamping of the healthcare system. Time will tell what Obamacare does to margins, but these companies may see a rise in test usage once all Americans are carrying a medical insurance policy that can counterbalance reductions in pricing. In the mid-term, these plays may continue to go lower as investors take a cautious approach to Medicare reimbursement and other factors that have yet to form the landscape of the future payment system. As valuations keep eking lower, though and even start approaching 10x earnings, you may see some analysts starting to give the companies more attention.

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