We're Hiking Our Price Target on This Holding. Where Would We Consider Adding?

We are boosting our price target on Two-rated Labcorp LH shares to $265 from $260 following the company’s December-quarter beat and prospects for further margin improvement in the coming quarters. That, combined with expected top-line growth of more than 7%, drives Labcorp’s outlook that calls for 10% EPS growth in 2025. The company's top-line outlook breaks down into faster growth at the company’s larger and more profitable Diagnostics business (78% of sales), which is slated to be led once again by a mixture of organic and acquisition-led growth.

Management said it sees a robust pipeline but timing is always uncertain given deal timing. That explains why Labcorp isn’t one to give quarterly forecasts, instead sticking to annual guidance. It also gives the company more time to integrate the Invitae business, which is expected to become accretive in the second half of 2025. This argues for stronger EPS growth in the back half of the year and gives us a potential reason to revisit our LH price target down the road.

We continue to see the company benefiting from the aging population as it continues to expand the battery of tests it offers and further expands its Diagnostics reach in hospitals, health systems, and regional labs. In 2024, the company inked 10 such transactions and expected free cash flow should allow for that to continue. Similar to how Costco’s COST expanding footprint helps drive future organic sales growth, we see the same for Labcorp as its reach expands.

However, even after our price target bump, the potential upside of less than 10% makes it hard to argue for adding more shares at current levels. A pullback near the 50-day moving average at $237.30, or one to the 100-day moving average at just under $231.50 offers a much better risk-reward tradeoff. 

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