On Thursday, Leerink Partners adjusted its outlook on Laboratory Corporation of America (NYSE:LH), raising the price target to $268 from $259 while maintaining an Outperform rating. The firm acknowledged the company's third-quarter results, which revealed sustained positive momentum, particularly in the most crucial segments of the business. This performance is expected to support what Leerink considers an undervalued enterprise.
Laboratory Corporation of America's diagnostics (Dx) and central lab segments exhibited robust revenue growth, benefiting from a blend of increased volumes, pricing, product mix, and strategic mergers and acquisitions. Despite facing challenges such as the financial impact from Invitae (OTC:NVTAQ), adverse weather conditions, and the effect of higher payroll days due to calendar variations, the company demonstrated strong underlying margin expansion.
While not all aspects of the business are excelling—namely, declines in early development—the core momentum of Laboratory Corporation of America appears to be steadfast in terms of both top-line revenue and operating profit. The market's low expectations may have contributed to a significant reaction to the quarter's results, but overall, the quarter is believed to have hit more high points than low, presenting an attractive valuation when compared to the market and its closest peer, DGX.
Leerink's revised price target of $268 is based on a multiple of 16.5 times the firm's estimated earnings per share (EPS) for the calendar year 2025, which represents an increase from the previous multiple of approximately 16 times. The Outperform rating is reiterated, reflecting the firm's confidence in Laboratory Corporation of America's ongoing performance and future prospects.
In other recent news, Labcorp reported an adjusted profit of $3.50 per share for the third quarter, surpassing the expected $3.48 per share. The company's revenue also exceeded estimates, reaching $3.28 billion, a 7.4% increase attributed to heightened demand for diagnostic services. However, Labcorp has adjusted its full-year 2024 profit outlook, lowering the upper end to $14.70 per share due to weather-related disruptions.
Piper Sandler has initiated coverage on Labcorp, assigning a neutral rating and a price target of $235. The firm sees Labcorp as a potential key player in the consolidation of the diagnostics services industry. Meanwhile, investment banking firms Jefferies, Baird, and BofA Securities have all raised their price targets on Labcorp shares, reflecting confidence in the company's core diagnostics business.
Labcorp has also secured $2 billion in senior notes, with net proceeds expected to be used for redeeming or repaying existing indebtedness. The company recently acquired Invitae, which is expected to significantly contribute to Labcorp's revenue, with BofA Securities expecting the Invitae assets to become net accretive to earnings per share in 2025.
InvestingPro Insights
Laboratory Corporation of America's recent performance aligns with several key insights from InvestingPro. The company's revenue growth of 5.22% over the last twelve months and 6.17% in the most recent quarter supports Leerink Partners' observation of robust revenue growth in crucial segments. This growth trajectory is further reinforced by an InvestingPro Tip indicating that net income is expected to grow this year.
The market's positive reaction to LH's performance is reflected in the stock trading near its 52-week high, with a price at 95.95% of its 52-week peak. This aligns with Leerink's view of the company's undervalued status and strong momentum. Additionally, LH's P/E ratio (adjusted) of 24.13 suggests a more moderate valuation compared to the unadjusted P/E of 43.5, which could indicate potential for further price appreciation.
InvestingPro offers 11 additional tips for Laboratory Corporation of America, providing investors with a comprehensive analysis of the company's financial health and market position. To gain access to these insights and more detailed financial metrics, consider exploring the full range of data available on InvestingPro.
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