Is it the Right Time to Retain Labcorp Stock in Your Portfolio?

Labcorp Holdings Inc. LH, or Labcorp’s strong focus on key specialty testing areas, such as oncology, women’s health, autoimmune disease and neurology, is poised to help it grow in the upcoming quarters. The company maintains a solid pipeline of potential acquisitions that fit its financial strategy and will enhance its organic growth. The Central Laboratories business remains the key growth driver of the Biopharma Laboratory Services (“BLS”) segment. Meanwhile, the adverse impacts of macroeconomic issues and currency fluctuations raise concerns for Labcorp’s operations. 

In the past year, this Zacks Rank #3 (Hold) stock has risen 4.9% against the industry’s 9.2% fall and the S&P 500 composite’s 1.4% decline.

The renowned healthcare diagnostics company has a market capitalization of $18.70 billion. It has an earnings yield of 7.2% compared to the industry’s 6.3% yield. In the trailing four quarters, the company delivered an average earnings surprise of 3.2%.

Let’s delve deeper.

Factors Aiding Labcorp

Targeted Development in High-Growth Areas: In 2024, the company enhanced its neurodegenerative diseases testing capabilities with two blood-based biomarkers — the pTau217 test for Alzheimer's disease diagnosis and monitoring and the GFAP (glial fibrillary acidic protein) test for early detection of neurodegenerative diseases and neurological injuries. Labcorp expanded its oncology offerings with Plasma Detect, an assay that uses whole genome sequencing and a proprietary machine learning analysis to detect MRD (minimal residual disease). Presently, it is in 12 global trials across several tumor types.

The Precision Oncology portfolio expanded with new strategic service offerings such as Labcorp Tissue Complete and OmniSeq INSIGHT circulating tumor DNA. A key milestone was the FDA’s de novo marketing authorization for the PGDx elio plasma focus Dx. In the fourth quarter, the company launched a multiple sclerosis monitoring profile to monitor neurofilament light chain serum and GFAP values in multiple sclerosis patients. It also introduced the first companion diagnostic (CDx) assay to identify gastric cancer patients eligible for targeted treatment with VYLOY. Furthermore, several consumer-initiated tests were launched through the Labcorp OnDemand platform.

Strategic Acquisitions and Partnerships to Drive Growth: In 2024, the company invested $839 million in acquisitions and announced multiple transactions to bolster its role as a key partner to hospitals, health systems and regional/local laboratories. During the fourth quarter, Labcorp acquired select assets and the molecular testing location of Lab Works, enhancing access to comprehensive testing and laboratory services in Alabama. It also completed the acquisition of Ballad Health’s select outreach laboratory services in the Appalachian region.

In December, Labcorp entered into an agreement with MAWD Pathology Group to acquire select assets of their independent laboratory’s clinical and women’s health testing businesses. Amid a multistate U.S. outbreak of H5 bird flu, the company introduced a new H5 bird flu molecular test in collaboration with the CDC (Centers for Disease Control and Prevention).

Additionally, Labcorp acquired select assets of BioReference Health's diagnostics business and teamed up with Naples Comprehensive Healthcare to manage its inpatient lab operations. Labcorp purchased select assets from Invitae, which is expected to drive top-line growth of approximately 10% and be slightly accretive to earnings in 2025.

BLS Expansion Continues: This business is benefiting from collaborations with leading pharmaceutical and biotechnology companies, with whom it started working on potential antivirals, treatments and vaccines. Revenue-wise, Biopharma's growth continues to be driven by strength in central laboratories, its largest part, which improved 10% in the fourth quarter of 2024. The Early Development business also demonstrated 12% year-over-year revenue growth.

Additionally, Labcorp bolstered its global molecular bioanalytical capacity by opening a new facility in Greenfield, IN. The laboratory is equipped to support the development and validation of preclinical and clinical molecular bioanalytical assays required for advanced therapies.Also, in 2023, it opened two new international facilities in China — a new kit production facility and an expanded immunology and immunotoxicology laboratory.

Factors Weighing on LH

Macroeconomic Risks: Labcorp’s operations are heavily dependent on the demand for diagnostic testing and drug development services from patients, physicians, hospitals, medical device companies and others. In recent times, volatilities in global economic conditions, including inflation, have significantly reduced the demand for these services, affecting the customers’ ability to pay and, consequently, the profitability of the company.  Added to this, heightened geopolitical situations, such as in Ukraine and the Middle East, can potentially decrease testing volumes, cause disruptions in the supply chain and increase the prices of offerings.

Exposed to Currency Headwind: Labcorp's huge exposure in international markets makes it vulnerable to currency fluctuations. With the recent upward trend observed in the value of the U.S. dollar, further acceleration expected by analysts in this value will cause the company’s revenues to face a tough situation overseas. In 2025, foreign currency translation is expected to adversely weigh on enterprise revenues by 50 basis points (bps) and a higher 140 bps on Biopharma revenues.

LH Stock Estimate Trend

In the past 30 days, the Zacks Consensus Estimate for Labcorp’s 2025 earnings per share (EPS) has remained constant at $16.01.

The Zacks Consensus Estimate for 2025 revenues is pegged at $13.93 billion, suggesting a 7.1% improvement from the 2024 comparable figure.

Top MedTech Stocks

Some better-ranked stocks in the broader medical space are Masimo MASI, Boston Scientific BSX and Abbott ABT.

Masimo has an earnings yield of 3.5%, well ahead of the industry’s -3.6% yield. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 14.4%. Its shares have risen 1.6% against the industry’s 18% fall in the past year.

MASI sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Scientific, carrying a Zacks Rank #2 (Buy), has an earnings yield of 3.1% compared with the industry’s 0.4%. Shares of the company have rallied 54.8% compared with the industry’s 10.5% growth. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 8.3%.

Abbott, carrying a Zacks Rank #2 at present, has an earnings yield of 4.1% compared with the industry’s 0.4%. Shares of the company have rallied 11.5% compared with the industry’s 1.5% growth. ABT’s earnings surpassed estimates in three of the trailing four quarters and matched in one, with the average surprise being 1.6%.

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This article originally published on Zacks Investment Research (zacks.com).

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