Wednesday, January 8, 2014

Stay Away From This Laboratory

This article was originally published by TheStreet.

NEW YORK (TheStreet) -- The medical laboratory tests and services company Laboratory Corporation of America (LH_), more commonly known as LabCorp, serves more than 220,000 clients, including physicians' offices, hospitals, managed care organizations and pharmaceutical companies.

LabCorp has been struggling with growth amid a challenging business environment. Its increasing costs have outpaced revenue growth, dragging profit margins. In 2014, LabCorp is expecting just 2% top line growth and an earnings drop. The business's financial strength is far from stellar, with a lofty debt-to-equity ratio and declining cash reserves. The company's shares underperformed this year and there are no catalysts at work that could change this in 2014. Following the recent sell-off, I believe that the company's shares are a sell on some recovery to low-to-mid-$90s in the coming weeks.
A week ago, LabCorp issued its 2014 guidance that came well below Wall Street's expectations. In 2014, LabCorp is eying revenue growth of just 2% and earnings of $6.50 per share, significantly below market's expectations of $7.54 per share. For the current year, LabCorp could record earnings of around $6.98 per share, which is the mid-point of its updated guidance. In other words, the company is expecting a 7% drop in earnings in 2014.

Following this disappointing guidance, the company's shares dropped by 11% the next day, its biggest one-day decline in more than six years. Investors were clearly taken by surprise. LabCorp, which is a low cost lab provider, was expected to be one of the few operators in this industry that could endure the tough market conditions.
The current challenging business environment will continue through 2014. LabCorp and its competitors, Bio-Reference Laboratories (BRLI_) and Quest Laboratories (DGX_), have been under pressure the last few years due to … read full article at TheStreet