On Monday, Baird revised its price target for Laboratory Corporation of America (NYSE:LH), reducing it to $286.00 from the previous target of $289.00. Despite the price target adjustment, Baird continues to hold an Outperform rating on the healthcare diagnostics company's stock.
The firm's analyst noted that Laboratory Corporation of America, commonly referred to as LabCorp, is a key focus in their Lab Quarterly report due to bullish sentiments on the laboratory sector and the company's relative valuation.
The analyst highlighted LabCorp's Biomarker Testing Solutions (BLS) segment, stating that its Central Lab operations merit a premium multiple in normal market conditions and should not fall below an average lab multiple even in challenging market scenarios.
LabCorp's Central Lab has been performing notably better than the trend seen in the Contract Research Organization (CRO) market. However, the company's Early Development results have been disappointing since the second quarter of 2022.
Nonetheless, LabCorp anticipates a modest year-over-year growth in the fourth quarter, attributing this to favorable comparisons to previous periods, a shift towards a smaller client mix, and an overall improving trend that is expected to drive growth into 2025.
The analyst also pointed out that LabCorp's stock is trading at a discounted multiple, which may be an overreaction to the company's exposure to Early Development. This segment accounts for approximately 6% of LabCorp's revenue and contributes even less to profit. The current valuation, according to the analyst, does not fully reflect the company's performance and potential.
InvestingPro Insights
To complement Baird's analysis of Laboratory Corporation of America (NYSE:LH), recent data from InvestingPro provides additional context for investors. Despite the price target reduction, LabCorp's financial metrics suggest a company with solid fundamentals. The company's revenue growth of 5.43% over the last twelve months and a quarterly growth of 7.37% as of Q3 2024 align with the analyst's expectations of modest growth.
InvestingPro Tips highlight that LabCorp is expected to remain profitable this year, which supports the analyst's bullish sentiment on the laboratory sector. Additionally, the company's stock is trading near its 52-week high, with a price at 96.65% of its peak, indicating investor confidence despite the challenges in the Early Development segment.
The current P/E ratio of 46.32 might seem high, but the adjusted P/E ratio of 25.45 for the last twelve months ending Q3 2024 provides a more nuanced view of the company's valuation. This adjusted figure may better reflect the analyst's perspective on LabCorp's discounted multiple and potential undervaluation.
For investors seeking a deeper understanding of LabCorp's prospects, InvestingPro offers 7 additional tips, which could provide further insights into the company's financial health and market position.
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