Our Position Is Trading Off and We've Got a New Plan
As expected, last week’s IT outage and Hurricane Beryl are impacting 3Q 2024 guidance.
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*Our shares of Labcorp are under pressure following earnings from Quest Diagnostics
*While Quest raised its 2H 2024 outlook, last week’s IT outage and Hurricane Beryl will impact the current quarter
*We will wait for Labcorp to update its guidance for these events when it reports on August 1 before making any move with LH shares
While the majority of the portfolio’s holdings are trending higher today, especially Lockheed Martin LMT following its beat-and-raise quarter, our shares of Labcorp LH are under some pressure. We trace it back to the same pressure on the shares of Quest Diagnostics DGX, which also delivered a beat-and-raised June quarter earlier on Tuesday. After delivering $2.4 billion in June quarter revenue, Quest lifted its top-line forecast to $9.5 billion to $9.8 billion, up from $9.4 billion to $9.48 billion. What this means is Quest has lifted its outlook for the second half to one of modest growth from being sequentially softer compared to 1H 2024.
However, during the earnings call, Quest management shared that it sees an impact from last week’s IT outage and Hurricane Beryl in Texas impacting its bottom line for this quarter by $0.6 to $0.08 per share. We discussed that we were likely to see companies discuss the impact of these two events and, sure enough, we are. We would not be surprised if Labcorp offers up a similar discussion but the key as we assemble these moving pieces with Quest’s guidance is this: Despite the impact of last week’s IT outage and Hurricane Berly, the company lifted its 2H 2024 outlook. Granted that the market will need to adjust its expectations for the current quarter, but it’s the next 2H EPS boost it should be focusing on.
Our LH shares had a nice run from $190 to $216 over the last several weeks, so we’re not surprised that it is being weighed down by what will likely be an EPS shuffle even though we’re likely to see some upward adjustments to DGX price targets. While tempting, we will want to see LH shares fully reflect Labcorp’s updated outlook which will also include the impact of these two events before contemplating buying more shares. We will also watch support for LH shares near $203, which given our $235 price target could offer a nice pickup point once we see the shares reflect an updated 2H 2024 forecast.
At the time of publication, TheStreet Pro Portfolio was long LMT and LH.
