Our Labcorp Price Target as Latest Results Surprise

We are reiterating our $265 price target on the shares of Labcorp LH following its consensus-EPS-topping March quarter results and in-line guidance. With just 11% upside to that target, we reiterate our Two rating.

As we discussed in our March quarter report preview note on Monday for LH and Waste Management WM, we continue to see both as relative safe haven companies given the nature of their respective businesses.

For Labcorp, the story remains one of an expanding array of diagnostic tests, testing relationships with medical offices and hospitals, and footprint expansion. While results can be lumpy quarter to quarter, we see Labcorp benefiting from those factors as well as the aging domestic population and the subsequent tailwind for medical testing.

Labcorp’s March quarter results were similar to those from Waste Management in that EPS of $3.84 easily topped the market consensus of $3.74. Revenue for the quarter climbed more than 5% year over year to $3.35 billion, a hair shy of the $3.4 billion consensus. Based on the March quarter’s results, the company lifted its 2025 EPS target to $15.70 to $16.40 from $15.60 to $16.40 and reiterated its 2025 revenue target of $13.88 billion to $14.05 billion, up 7.4% year over year at the midpoint of that range. That compares to the market consensus of $13.92 billion. Baked into that guidance, Diagnostics revenue is expected to be up 6.5% to 7.7% year over year while revenue for the Biopharma Laboratory Services (BLS) segment is forecasted to climb 3% to 5%.

All in, there were few surprises with Labcorp’s results and outlook, especially as it continues to see the Invitae business becoming accretive in 2H 2025. That progress gives Labcorp some wiggle room when it comes to the potential impact of tariffs. During the earnings call, management shared the vast majority of its vendor spend is from U.S. companies where Labcorp is not the importer of record. Also, more than 80% of that spending has secured pricing and are multi-year contracts. We expect there will be some pricing pressure, but the gains coming from Invitae should help offset that, which allowed Labcorp to keep its EPS outlook for the year intact. Based on the duration of tariffs and potential trade deals, there could be some incremental EPS upside in 2H 2025.

Turning to the company’s operating segments, revenue from the Diagnostics business rose 6% year over year to $2.6 billion with organic growth of 1.6% and net acquisitions responsible for 4.7%. Organic growth was impacted by approximately 490 basis points from weather and one fewer revenue day, which is timing-related within the year. We’ve heard that comment from other companies and we expect it will be a recurring one in the coming weeks. Diagnostics-adjusted operating income for the quarter was $428 million, or 16.3% of revenue down several basis points year over year due to higher personnel costs and drag from the Invitae business. As we noted above, Invitae remains on track to be slightly accretive for full year 2025, which means becoming accretive in 2H 2025.

Labcorp’s BLS segment posted revenue of $721 million, up a modest 1.5% compared to the year-ago quarter. The year-ago quarter benefitted from a large amount of COVID-19 vaccine revenue. BLS ended the quarter with a backlog of $8.2 billion and approximately $2.6 billion of this backlog to convert into revenue over the next 12 months.

One of the key aspects of Labcorp is its multi-faceted growth strategies, which include nip-and-tuck acquisitions and expanding its testing capabilities. In March, Labcorp announced an agreement to acquire select assets of BioReference Health Oncology and related clinical testing services. This transaction will extend its oncology position. The company also completed the acquisition of select assets of North Mississippi Health Services, an ambulatory outreach laboratory business, and became a referral lab for its seven hospitals and clinical laboratories.

After the quarter’s end, Labcorp introduced HPV and SDI Self-collection Options in Labcorp patient service centers and physician offices. More recently it launched its pTau Beta Amyloid Ratio Test, a new blood-based biomarker test to aid in the diagnosis of Alzheimer's disease, expanding its portfolio for Alzheimer's disease and dementia.

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At the time of publication, TheStreet Pro Portfolio was long LH and WM.