Clinical lab-testing outfit LabCorp (NYSE:LH) will report Q4 2006 earnings on Thursday, Feb. 15. Let's see whether the results are positive.

What analysts say:

  • Buy, sell, or waffle? Of the 13 analysts probing Lab Corp, seven say "buy," while six say the company's inconclusive and rate it a hold.
  • Revenues. On average, the analysts are looking for a near-6% increase in sales, to $874.5 million.
  • Earnings. Profits are expected to rise 7.5%, to $0.72 per share, from the $0.67 per share posted last year.

What management says:
The potential for sustained revenue and earnings growth was one of the driving factors in LabCorp's 10-year, $3 billion exclusive deal with UnitedHealth (NYSE:UNH). According to chairman and CEO Thomas MacMahon, "The third-quarter announcement related to the historic ten-year agreement with UnitedHealthcare solidifies our opportunity to continue to deliver quality earnings to our shareholders well into the future." That's true enough, but the company has also committed to reimburse UnitedHealth as much as $200 million for transition costs related to lab expansion, which could end up causing delays and higher costs for LabCorp.

What management does:
While the UnitedHealth coup certainly upsets the competition -- losing the contract may cost Quest Diagnostics (NYSE:DGX) as much as $385 million in revenues annually -- Quest is still the largest testing company, and it can intensify a pricing war. That could prompt a squeeze on margins, something that LabCorp has so far been able to keep stable.

























All data courtesy of CapitalIQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
LabCorp was the first national clinical lab to fully embrace genomic testing, giving it a competitive advantage in the marketplace as it focuses on genetics and cancer testing. At the end of 2005, some $1.13 billion -- 34% of LabCorp's revenues -- were derived from genomic and esoteric testing, boosted in large part from its acquisition of Dianon. Prior to the acquisition, only 27% of its revenues came from such tests. Genomics testing grew more than 6% in the third quarter of 2006 alone.

The deal with UnitedHealth should produce results down the road, but UnitedHealth makes its profits by trying to keep costs low. That includes paying for lab tests. In losing out to LabCorp, Quest had said the cost of renewing the contract would have been onerous, so it's possible they're snickering at LabCorp's win -- possible, but doubtful. Demographic trends support the growth of lab testing, along with trends in medicine that encourage disease prevention via testing, and labs like LabCorp are well-positioned to profit. As the second-largest testing company, behind Quest, it should be able to capture at least an equal share of any growth that occurs.


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Related Foolishness:

LabCorp is a recommendation of Motley Fool Stock Advisor. UnitedHealth is a recommendation of Motley Fool Inside Value. Whatever your investing style, the Motley Fool has a service for you.

Fool contributor Rich Duprey does not own any of the stocks appearing in this article.