Laboratory Corp (NYSE: LH) could be the perfect company for the coronavirus age. LabCorp operates medical testing labs all over the United States.
For example, LabCorp claims to test over three million patient specimens a week. Importantly, Laboratory Corp or LabCorp offers the LabCorp now offers the COVID-19 IgG antibody test and COVI9-19 Test Home Collection Kits.
Hence, Laboratory Corporation could make money because the federal government requires health insurers to cover Novel Coronavirus (COVID-19) diagnostic testing at no cost to patients. Thus, Uncle Sam could use tax money to pay for many of LabCorp’s services. In addition, Medicare Part B covers coronavirus tests and COVID-19 antibody tests, Medicare.gov reports.
Is Coronavirus good for LabCorp?
On the other hand, coronavirus has not been good for Laboratory Corp. of America Holdings (NYSE: LH) stock.
For example, LabCorp began 2020 with a $167.48 share price on 2 January 2020. That stock fell to $104.32 on 23 March 2020, but rose to $170.52 on 20 May 2020 and fell to to $170.16 on 22 May 2020. Therefore, coronavirus has been good for Laboratory Corp’s stock.
However, cynics will ask if LabCorp is making money? After all, Laboratory Corporation will have to pay for extra equipment to perform all those coronavirus tests. Plus, LabCorp will need to pay for expensive safety measures to protect its employees and customers from COVID-19. Thus, LabCorp’s expenses could be higher.
Can LabCorp Make Money?
Conversely, LabCorp lost money in the first quarter of 2020. For instance, LabCorp reported a quarterly operating loss of -$192.6 million and a common net loss of -$317 million on 31 March 2020.
However, LabCorp made a quarterly gross profit of $728 million on quarterly revenues of $2.823 billion on 31 March 2020. Unfortunately, those revenues fell from $2.933 billion and the gross profit fell from $820.7 million on 31 December 2019.
Thus, Laboratory Corp’s revenues and gross profit fell in the first quarter of 2020. Additionally, LabCorp’s quarterly operating income fell from $336.4 million on 31 December 2020 to -$192 million on 31 March 2020.
Thus, LabCorp is losing money in the Coronavirus pandemic. However, they reported those numbers before Medicare began covering coronavirus testing.
One problem for LabCorp is that people are not getting other kinds of tests; such as drug testing, because of coronavirus. Therefore, LabCorp’s expenses could increase as its revenues fall.
How Much Cash is LabCorp is Generating?
Importantly, LabCorp (NYSE: LH) is generating cash. Notably, LabCorp reported a quarterly operating cash flow of $203.80 million on 31 March 2020. However, that operating cash flow fell from $569.8 million on 31 December 2020.
Moreover, Laboratory Corp reported an ending cash flow of $323.60 million on 31 March 2020. Interestingly, that ending cash flow grew from -$23.60 million on at the end of 2019.
Consequently, LabCorp reported $323.60 million in cash and short-term investments on 31 March 2020. However, that number was down from $337.50 million on 31 December 2019 and $348 million on 31 March 2019.
Therefore, Laboratory Corporation has less cash. Interestingly, LabCorp reported $17.298 billion in total assets and long term debts of $6.489 billion 31 March 2020. Thus, LabCorp could face debts it cannot pay.
Is LabCorp a Value investment?
I think Laboratory Corp (NYSE: LH) has significant value, despite its debts. For example, LabCorp operates 36 primary laboratories in the United States.
Moreover, the federal government will pay for many of those laboratory services in the form of Medicare and Medicaid. For example, the Centers for Medicaid and Medicare estimate Medicaid and Children’s Health Insurance Programs (CHIP)covered 70.712 million Americans in January 2020. Additionally, the Centers for Medicare and Medicare estimate 61.4 million Americas received Medicare in 2019.
Laboratory Corp has tens of millions of customers whose charges the federal government will cover. Therefore, I think Laboratory Corp has a high margin of safety because the federal government will cover its expenses.
Is LabCorp a Good Stock?
However, I think LabCorp is a terrible stock because it pays no dividend and offers ordinary investors margin of safety.
In addition, I think Mr. Market overpriced LabCorp at $170.19 on 22 May 2020. I advise investors to avoid LabCorp until Mr. Market prices it realistically. In conclusion, I think a realistic price for Laboratory Corp (NYSE: LH) could be around $50.
Originally published at https://marketmadhouse.com on May 25, 2020.