Co. Spotlight - Lab Corp. |  - Co. Spotlights available via RSS feed
| Testing, Testing |  
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| | LH | $70 | The Good: Better efficiencies to increase margins.
The Bad: Certain segments slowing due to worsening economy.
The Beautiful: Eye-popping return on equity. | P/E | 17 | | PSR | 2.25 | | ROE | 29% | | Debt/Eq. | 0.6 | | Div. Yield | 0% |
June 26, 2008 - Laboratory Corporation of America (LH-NYSE) pokes and prods as
one of the top providers of clinical laboratory services in the world. LabCorp performs tests on more than 420,000 patient specimens each day on behalf of managed care organizations, hospitals, doctors, government agencies, drug companies, and employers. Most of its tests are routine tests such as urinalyses, HIV tests, and Pap smears. LabCorp also offers specialty testing services, including diagnostic genetics, oncology diagnosis and monitoring, infectious disease testing, clinical drug trials testing, and allergy testing.
This is a growth company. It's growing sales and profits with the latter outpacing the former. Over the last 5 years revenues grew by 15% a year, on average, profits by 21%. In the next 5 years, analysts think sales will increase by 9% a year, on average, while earnings go up by 13% a year, on average. Sales last year were $4.068 billion while earnings per share were $4.15, up from $3.32 in 2006. In the first quarter of this year, sales were up to $1.1 billion, a 10.5% increase over the first quarter of last year. Both higher volume and prices contributed to the better results. In breaking down the revenues, management pointed out that certain categories were affected by the economic slowdown, in particular drugs for abuse testing. The company is currently using its cash flow to buy back shares. In the first quarter alone, it purchased $55.7 million of its stock, about 700,000 shares. There's another $350 million earmarked to buy more. There are 111.3 million shares outstanding. More efficiencies should start to show in the operating margins as the company invested heavily in streamlining activities from standardizing lab and billing systems, lab instruments, and facets of the business over the last 10 years. Last year the operating margin was 26.1%, up from 25.7% in 2006. More numbers: Current assets are below current liabilities ($908 million vs. $1.03 billion). There is $767 million in cash and receivables. The stock price has climbed almost uninterrupted from 2002 when it bottomed at $18.50, then peaked at $82.30 late last year. Debt is 38% of the balance sheet. There is no dividend. Return on Equity was 29.4% last year. Net Profit Margin was 12.5% last year with analysts seeing 12.1% this year and 12.6% next year. Laboratory Corp. is well liked by investors and should be. Management has delivered earnings that grew consisently for many years. With the aging of the U.S. population in particular, the company should stay busy. With its new efficiencies, the profitability and return on equity should continue to improve. If the company delivers on earnings as predicted, so should the stock. - Company Web site: www.labcorp.com - Ted Allrich |
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