In a move that is likely to boost its diagnostics revenues, Laboratory Corp. of America Holdings (NYSE:LH), also known as LabCorp, recently extended its technical services agreement with Novant Health. The agreement was originally signed in 2012 and the latest development means that LabCorp will continue to be Novant Health’s primary laboratory management services provider. Novant Health operates acute care facilities.
For LabCorp, the extension of the deal with Novant Health is important considering that it supports its most important revenue source. The company’s diagnostics operation, LabCorp Diagnostics, contributed 71.0% of topline in 1Q17. LabCorp reported overall revenue of $2.4 billion in the quarter, up about 5.0% from a year earlier and in-line with consensus estimates.
The extension of the deal also comes at a moment when the diagnostics market is seeing rosy growth projections. Research firm MarketsandMarkets forecasts that diagnostics imaging market will grow at an average annual rate of 6.6% between 2016 and 2021. Over the same timeframe, vitro diagnostic market is projected to grow at an average annual rate of 5.5%.
LabCorp has been seen employing different strategies to take advantage of this forecast growth. Extension of contracts with existing clients is only one of those strategies. LabCorp’s other strategies have included strategic partnerships and acquisitions. For example, LabCorp in May closed the acquisition of Mount Sinai Health System Clinical Outreach Laboratories, a move that would see it add new customers and expand the reach of its portfolio of differentiated laboratory services.
LabCorp shows confidence in its business prospects
LabCorp seems so confident about the moves it is making that it recently revised growth projection for its Diagnostics arm upward. The new growth guidance calls for Diagnostics revenues to increase by 5% – 7% this year over $6.6 billion generated in 2016.
LabCorp stock movements
LabCorp nearly touched its 52-week peak in the last session as the market reacted positively to the report of its deal extension with Novant Health. The stock rose 0.65% and settled at $152.45 after rallying between a low of 152.17 and a high of $153.30. The stock’s 52-week peak stands at $154.82.
The stock is up 18.8% since the year began and up 12.7% over the last 12 months.
