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LabCorp Shares Tumble Following Lowered 2018 Guidance

NEW YORK (360Dx) – Shares of Laboratory Corporation of America were down 11 percent in morning trading today following the company's announcement that it was lowering its full-year 2018 guidance on the top and bottom lines.

Total revenue growth is expected to be in the range of 9.9 percent to 10.3 percent year over year, down from prior guidance of 10.5 percent to 11 percent growth. Revenue growth for LabCorp Diagnostics is expected to be in the range of 2.1 percent to 2.5 percent, down from prior guidance of 3 percent to 3.5 percent.

Adjusted EPS guidance for 2018 was lowered to $10.95 to $11.05 from $11.25 to $11.45. Free cash flow guidance was lowered to $940 million to $980 million from $975 million to $1.025 billion.

LabCorp said its revised outlook was primarily driven by lower-than-expected volume growth in LabCorp Diagnostics, which the company expects to continue for the remainder of the year. LabCorp attributed softness in demand to slower growth in referred direct-to-consumer genetic testing, lower referral volume from hospitals and health systems, and adverse weather.

The company also cited volume declines from certain managed care plans that will no longer be exclusive to LabCorp in 2019. In May UnitedHealthcare announced that it was ending its exclusive laboratory provider relationship with LabCorp and initiating a long-term strategic partnership with its competitor Quest Diagnostics. The insurer renewed a long-term strategic partnership with LabCorp.

LabCorp has implemented cost reduction initiatives, but the initiatives will be insufficient to maintain the company's prior outlook in light of the unanticipated volume shortfall, according to the company.

"We are disappointed with this shortfall in diagnostics, but continue to be confident in our outlook in Covance Drug Development," said David King, Chairman and chief executive office of LabCorp, in a statement. "Looking to next year, we continue to expect modest EPS growth over our updated 2018 earnings."

LabCorp's revisions come days after Quest also lowered full-year guidance, citing volume softness driven by Hurricane Michael, the California wildfires, and a recent snowstorm on the East Coast. Quest lowered revenue expectations to $7.57 billion, which would represent a year-over-year-increase of a little more than 2 percent, down from earlier guidance of $7.62 billion, which would represent 3 percent year-over-year growth.

Several analysts lowered price targets for LabCorp's stock today but otherwise assessed the headwinds as short-term.

Piper Jaffray reduced its price target to $177 from $180 but called the stock a "long-term buying opportunity."

Everercore ISI lowered its price target to $173 from $182 and expressed surprise in lower revenues in direct-to consumer genomics. "We struggle to wrap our head around DTC genomics but attribute it to seasonality for now," Ross Muken said, in an investor note.

LabCorp's stock was trading at $143.66 on the New York Stock Exchange, down 11 percent in late morning trading.