Analyst Note| Debbie S. Wang |
Narrow-moat LabCorp delivered strong second-quarter results against a weak prior-year period, but this quarter also trended downward from the COVID-19-driven highs reached in late 2020 and early 2021. After making slight adjustments to our assumptions, we’re leaving our fair value estimate unchanged. While the pace of declines in COVID-19 testing remains a moving target, shifts in the second quarter largely fit into the pattern we’ve been expecting--resumption of non-pandemic tests on a see-saw with decreases in COVID-19 tests. COVID-19 test volume has consistently declined from its highs in early January through midyear. However, the pace of decline has been a bit slower than we’d projected. Additionally, management mentioned some stabilization in pandemic test volume in July, reflecting the spread of the Delta variant and rising viral transmission. Considering the current level of vaccination in the U.S., we now think our initial assumption of a 45% decline in 2021 COVID-19 testing was overstated and have dialed that back to 38%. This was offset by an incremental increase to our estimate for non-pandemic test volume.