On Monday, Jefferies began coverage on Laboratory Corporation of America Holdings (NYSE:LH), commonly known as LabCorp, assigning the stock a Buy rating with a price target of $275. The firm highlighted that LabCorp, currently valued at $19.74 billion, is emerging from a period marked by significant challenges due to COVID-19, which had a more than $1 billion impact in both 2022 and 2023. Additionally, the company dealt with the underperformance of its Fortrea asset, which only grew at a compound annual growth rate (CAGR) of approximately 1% from 2021 to 2023.
The analyst noted that 2024 is shaping up to be a more stable year for LabCorp as the COVID-related difficulties have lessened, with less than $200 million in COVID sales in 2023. The recent spinoff of Fortrea in 2023 has allowed the company to concentrate and invest in its more successful ventures, such as reference labs and esoteric testing.
The focus is on the sustainability of LabCorp's recent revenue growth, which reached 5.43% in the last twelve months, and the company's long-range plan, which anticipates mid-single-digit organic growth.
LabCorp's stock is currently trading at around 11 times its earnings before interest, taxes, depreciation, and amortization (EBITDA), with a 25% discount relative to the S&P 500. This valuation is consistent with the company's historical average of approximately 10 times EBITDA and a 23% discount. The analyst pointed out that LabCorp's growth prospects are now more apparent than in previous years.
This is due to several factors: mergers and acquisitions in the reference lab sector driving strong volume growth, a recovery in Early Development that presents a potential re-rating opportunity, and the acquisition of Invitae (OTC:NVTAQ), which demonstrates LabCorp's commitment to diversifying through esoteric testing.
While the industry awaits evidence of LabCorp's ability to execute at a margin level, Jefferies suggests there could be potential for the stock to outperform consensus estimates. The firm sets a confident tone in its initiation of coverage, with a $275 price target for LabCorp shares, which is trading near its 52-week high of $247.99.
According to InvestingPro analysis, the company currently appears slightly overvalued based on its Fair Value calculations, though it maintains a GOOD overall financial health score. For deeper insights into LabCorp's valuation and growth prospects, including 8 additional ProTips and comprehensive financial metrics, investors can access the full Pro Research Report available on InvestingPro.
In other recent news, Laboratory Corporation of America, also known as LabCorp, reported a 7% year-over-year revenue increase to $3.3 billion in its Q3 2024 earnings call, with diagnostics revenue growing by 9% and biopharma laboratory services rising by 3%. The company also announced adjusted earnings per share (EPS) increased by 4% to $3.50. Despite challenges from Hurricanes Helene and Milton, LabCorp maintained a positive outlook, supported by strategic acquisitions and new product launches.
In addition, Baird, a financial services firm, revised its price target for LabCorp, reducing it to $286.00 from the previous target of $289.00, while maintaining an Outperform rating on the company's stock.
The firm's analyst noted that LabCorp's Central Lab operations have been performing notably better than the trend seen in the Contract Research Organization (CRO) market, despite disappointing results from the company's Early Development segment.
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