Analyst Nicholas Jansen of Raymond James & Associates upgraded Laboratory Corp. of America Holdings (LH) to an “outperform” at the start of the year. Jansen says the acquisition of Covance, a clinical research organization, has afforded LabCorp a new growth outlet to diversify the business model.
“What’s the underappreciated aspect of the story is the revenue-synergy opportunity. As the CRO of Covance helps pharmaceutical manufacturers enroll patients into clinical trials, LabCorp has a gigantic database of patients that they can help the CRO with to help enroll these patients faster into clinical trials, which should ultimately result in more pharmaceutical manufacturers utilizing Covance for their CRO work relative to others,” Jansen says.
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Jansen says LabCorp has the ability to return to growth after three years of flat to stagnating earnings trends. While there are still some longer-term structural headwinds in the core lab business, Jansen says the acquisition should enhance LabCorp’s ability to grow through those challenges.
“I think you have the opportunity for LabCorp not only to beat on numbers as the synergies of this acquisition play out, but also the ability to get some multiple expansion because it’s trading at a significant discount versus a large chunk of its external peer group,” Jansen says.
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