Millions of tests for COVID-19 have been performed in the U.S., but experts and politicians continue to emphasize that increased testing for the coronavirus is essential for a safe reopening of the economy. With testing so much in the public discussion now, it's not surprising that leading medical testing companies are getting attention from investors, especially as new COVID-19 tests are being granted emergency use authorization every week.

Laboratory Corporation of America (NYSE:LH), or LabCorp as it's known, is one of the biggest diagnostic testing companies in the country and has been in the headlines for coronavirus testing. Here's what people are talking about and what the pandemic means for the company's stock as an investment opportunity.

Quick to respond to COVID-19 testing needs

LabCorp was the first U.S. commercial lab to  launch testing for COVID-19 using the polymerase chain reaction (PCR) molecular test on March 5, only five days after the U.S. Food and Drug Administration (FDA) loosened rules for testing. The now-familiar nasal swab tests to detect the SARS-CoV-2 virus were initially in short supply, but the company ramped up quickly, and had processed 500,000 tests within a month. On the company's conference call on April 29, LabCorp said that its capacity was up to 60,000 tests per day and that it had processed over a million COVID-19 tests.

Clinician with swab and test tube.

Image source: Getty Images.

On April 21, LabCorp upped the game by announcing the FDA had authorized an at-home test kit for the company's COVID-19 PCR test. The self-collection kit was made available for purchase online to patients with a doctor's order through the company's Pixel by LabCorp web site. Initially the kits were limited to healthcare workers and first responders, but on May 12 the company made the kits available to any physician-authorized patient and said the company has over 200,000 kits ready to ship.

LabCorp started offering blood antibody tests for SAR-CoV-2 to high priority healthcare workers in late March and expanded availability to hospitals, healthcare systems, and its own service centers on April 27. Blood antibody tests for SARS-CoV-2 detect whether asymptomatic people have been exposed to the virus in the past. The presence of antibodies indicate that the body has launched an immune response, but scientists still don't know if that means that the person is immune from getting the disease again. The tests give insight into the spread of the disease, though, and demand for them is expected to grow rapidly. LabCorp said it expects to perform 200,000 antibody tests per day by mid-May.

On May 14, the company announced a new service to help employers assess workers as they return to the job. The customized service includes an assessment that can be carried out by LabCorp medical staff on the employer's site and can include a PCR test and a blood antibody test. The company also used the occasion to announce a new antibody test that uses a fingerstick instead of a blood draw by a phlebotomist, an approach that's more convenient for testing large numbers of employees, not to mention more appealing to the employees themselves.

But on balance, the pandemic has been a headwind

With the company capitalizing on so many new testing opportunities, you'd think the pandemic would be a windfall for LabCorp. Actually it's been the opposite so far. Stay-at-home orders and the cancellation of routine medical procedures caused a 50% to 55% decline in testing volumes in its diagnostic segment toward the end of the first quarter, swamping out the benefit from COVID-19 testing. LabCorp performs about 530 million tests per year and takes in about $11 billion in revenue, so 60,000 tests per day at about $100 per test isn't going to help much when the company's normal business is whacked in half.

Of course, the picture will brighten from here. LabCorp expects to have the capacity to run 300,000 COVID-19 tests per day in the coming months, and if the pandemic continues to subside, pent-up demand for routine procedures and testing could be a tailwind for a while.

Revenue in the first quarter still inched up 1.2% despite the volume decline in the diagnostic segment and the fact that the company's Covance segment, which supports drug development by pharmaceutical companies, was negatively impacted by a slowdown in clinical trials due to the pandemic. Still, analysts think full-year revenue will decline 6% from 2019 and adjusted earnings per share will crash 33% to $7.64, compared with the company's original guidance of $11.75 to $12.15.

The long-term outlook isn't compelling

If you believe in the long-term thesis for buying LabCorp stock, the disruption caused by the pandemic is a temporary situation that probably isn't much of a consideration one way or another. The problem with LabCorp, though, is that it hasn't exactly established a case for being a long-term growth story from here.

Revenue in 2019 was a paltry 2%, with only 1.6% coming from organic growth, and adjusted earnings per share increased only 2.7% to $11.32. The company's guidance for 2020 before the pandemic hit wasn't much to get excited about either, with a forecast of 5% growth of the top line and 6% growth of adjusted EPS at the midpoint of the guidance ranges. The Covance drug development segment is generating revenue growth in high single digits, but that is still a smaller part of the business than diagnostics and will be for the foreseeable future. The company doesn't pay a dividend.

It's not as if there aren't exciting developments in the testing field; LabCorp just hasn't capitalized on them. Genetic testing for personalized medicine is generating rapid growth for smaller companies specializing in it. But LabCorp is saddled with a large conventional diagnostics business where pricing can be subject to government actions to keep healthcare costs down. It does generate huge free cash flow -- $1 billion in 2019 -- and it could use that cash for acquisitions of faster-growing businesses. Whether it will find the right targets to move the growth needle is yet to be seen.