The demand for lab testing has increased substantially since the onset of the pandemic, thereby fuelling substantial investments in research and diagnostic industries. Moreover, given an aging population, the demand for clinical diagnostics has been increasing lately.

The integration of advanced technologies and analytics in detecting chronic diseases at their early stages is expected to drive the diagnostics and research industry’s growth over the next few years. Moreover, the increasing prevalence of infectious and chronic diseases and the growing awareness of the value of laboratory tests are also expected to fuel the industry’s growth. The global clinical laboratory service market is expected to grow at a 4.1% CAGR to reach $288.10 billion by 2030.

Given this backdrop, we think it could be wise to bet on fundamentally strong diagnostics and research stocks Agilent Technologies, Inc. (A), Waters Corporation (WAT), and Laboratory Corporation of America Holdings (LH) on their dips.

Agilent Technologies, Inc. (A)

A is engaged in providing application-focused solutions that include instruments, software, services, and consumables for the entire laboratory workflow. It operates through three segments: Life Sciences and Applied Markets; Diagnostics and Genomics; and CrossLab. The company’s products include liquid chromatography (LC) systems and components, atomic absorption (AA) instruments, and others.

On May 10, A announced that PD-L1 IHC 22C3 pharmDx was granted the CE-IVD mark for identifying cervical cancer in patients in Europe. This expansion should aid in cancer treatment and strengthen the company’s leadership in developing IHC-based diagnostics for cancer therapies.

In April, the company joined NIIMBL and Advanced Mammalian Biomanufacturing Innovation Center (AMBIC) to advance biomanufacturing. With the increasing prominence of biopharmaceuticals coupled with the advent of precision cell and gene biotherapeutics, the company continues to innovate and advance its tools and technologies.

A’s net revenue increased 8% year-over-year to $1.67 billion for the first quarter, which ended January 31, 2022. Its income from operations grew 14.6% from the year-ago value to $376 million, while its non-GAAP net income improved 12.2% year-over-year to $368 million. The company’s non-GAAP EPS increased 14% from the year-ago value to $1.21.

The consensus revenue estimate of $1.62 billion for the fiscal second quarter (ended April 2022) represents a 5.9% increase from the same period last year The consensus EPS estimate of $1.12 for the about-to-be-reported quarter represents a 15% increase from the same period last year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.

The stock has lost 23.8% over the past six months to close Friday’s trading session at $125.13.

A’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. A has a B grade for Growth, Value, Stability, Sentiment, and Quality. The stock is ranked #2 of 49 stocks in the Medical – Diagnostics/Research industry.

In addition to the grades I’ve just highlighted, view A ratings for Momentum here.

Waters Corporation (WAT)

WAT is a specialty measurement company that designs, manufactures, sells and services high-performance liquid chromatography (HPLC), ultra-performance liquid chromatography, and mass spectrometry (MS) technology systems and support products, including chromatography columns, other consumable products, and comprehensive post-warranty service plans. It operates through two segments: Waters; and TA.

On March 31, WAT introduced the Xevo TQ Absolute system, a high-performance mass spectrometer that is up to 15X more sensitive for analyzing negatively ionized compounds. This new launch is a tailored end-to-end solution to advance high sensitivity quantification, productivity, and efficiency and meet sustainability goals.

During the fiscal 2022 first quarter (ended April 2, 2022), WAT’s net sales increased 13% year-over-year to $690.57 million. Its operating income rose 14.1% from the year-ago value to $195.47 million. Net income grew 7.9% from the same period last year to $159.83 million, while its net income per share came in at $2.64, representing a 10.5% increase year-over-year.

Analysts expect WAT’s revenues to increase 3.5% year-over-year to $705.39 million in the fiscal second quarter (ending June 2022). Its EPS is expected to increase 1.9% to $2.65 in the ongoing quarter. It is no surprise the company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.

Over the past nine months, the stock has declined 20.7% to close Friday’s trading session at $318.95.

WAT has an overall rating of B, which translates to Buy in our proprietary rating system. It has an A grade for Quality and a B grade for Sentiment. Also, it is ranked #5 of 49 stocks in the Medical – Diagnostics/Research industry.

Click here to see the other ratings of WAT for Growth, Value, Momentum, and Stability.

Laboratory Corporation of America Holdings (LH)

LH is an independent clinical laboratory company operating through two segments: Labcorp Diagnostics (Dx); and Labcorp Drug Development (DD). It offers a wide range of tests such as blood chemistry analyses, urinalyses, thyroid tests, hemoglobin A1C and vitamin D products, tests for sexually transmitted diseases, hepatitis C tests, microbiology cultures and procedures, among various others. The company provides services to pharmaceutical, biotechnology, and medical device companies including healthcare providers worldwide.

On May 9, LH acquired AtlantiCare’s diagnostic clinical laboratory services. With this acquisition, the company expands its services in southern New Jersey and should offer quality laboratory services to patients and healthcare providers.

In the same month, LH received Emergency Use Authorization from FDA for the first non-prescription at-home collection kit for combined COVID-19, flu, and RSV Detection. This new offering should enhance the company’s portfolio of leading COVID-19 PCR testing options.

LH’s organic base business revenue increased 3.5% year-over-year in the fiscal first quarter ended March 31, 2022. Diagnostics base business volume increased 4.4% from the same period last year. Net income amounted to $491.60 million, translating to $5.23 earnings per share.

Analysts expect LH’s revenue to increase 4.6% year-over-year to $3.81 billion in the fiscal third quarter ending September 2022. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.

However, the stock has been down 12.3% in the past six months, closing Friday’s trading session at $248.55.

The company has an overall rating of B, which translates to Buy in our proprietary POWR Ratings system. LH also has a B grade for Quality. Within the same industry, it is ranked #8 of 49 stocks.

Beyond what we’ve stated above, we have also given LH grades for Growth, Stability, Sentiment, Momentum, and Value. Get all the LH ratings here.

A shares were unchanged in after-hours trading Monday. Year-to-date, A has declined -20.86%, versus a -16.17% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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