Source: Davit Kirakosyan
Evercore ISI Upgrades LabCorp to Outperform
Evercore ISI analysts have recently upgraded the rating of Laboratory Corporation of America (NYSE:LH), commonly known as LabCorp, to Outperform from an In Line rating. This indicates a positive shift in the company’s performance and future outlook. The analysts have also increased the price target for LabCorp from $260 to $265, suggesting a bullish prediction for the stock.
As part of the upgrade, the analysts expressed optimism about LabCorp’s ability to deliver above-consensus earnings per share (EPS) growth in 2025 and beyond. This optimism is driven by several key factors, including robust base testing demand, margin expansion, and significant improvements in operations.
Factors Driving LabCorp’s Growth
One of the primary factors influencing LabCorp’s growth is the continued demand for its core diagnostics business. This sector is expected to sustain a 3%-4% organic volume growth, even as overall healthcare utilization is projected to soften slightly in 2025. The continued growth is largely attributed to the company’s robust base testing capabilities, which remain in high demand.
Recent data indicates sustained elevated utilization levels compared to pre-COVID trends. Although some slowdown is anticipated, testing demand is expected to remain solid. LabCorp’s lab volume growth is projected to align with broader healthcare trends. However, its growth is expected to maintain a steadier pace as certain procedures, such as orthopedics, require minimal lab testing.
Invitae’s Contribution to LabCorp’s Growth
The contribution of Invitae, a genetics information company, is another factor that analysts believe will boost LabCorp’s growth. Invitae, which posed a $0.37 per share drag in 2024, is anticipated to become slightly accretive in 2025, contributing $0.03 to the annual EPS. This turnaround is expected to be driven by approximately 10% revenue growth and cost synergies.
Analysts expect the impact of Invitae on LabCorp’s EPS to become neutral by the second quarter and accretive in the latter half of the year. This projection suggests improved financial performance from Invitae, which will subsequently contribute positively to LabCorp’s overall financial performance.
Margin Expansion and Operational Improvements
Another key factor driving LabCorp’s growth is the expected expansion of diagnostics margins by about 80 basis points. This expansion is supported by approximately 4% core growth at a 35% contribution margin. It is anticipated to offset approximately $45 million in one-time costs from weather, inflation, and labor expenses.
The margin expansion and operational improvements at LabCorp indicate the company’s strong operational trajectory. These improvements are expected to strengthen the company’s financial performance, which, in turn, will positively influence its stock market performance.
Analysts Forecast Above-Target EPS Growth
According to the analysts at Evercore ISI, LabCorp’s overall EPS growth in 2025 is likely to exceed the company’s long-term target range of 8.5%-11.5%. This suggests that LabCorp’s operational efficiency and strategic growth initiatives are paying off. The forecasted above-target EPS growth highlights LabCorp’s strong operational trajectory, further reinforcing the company’s bullish outlook.
In conclusion, the upgrade of LabCorp’s rating to Outperform from In Line by Evercore ISI analysts, coupled with a raised price target, underscores the company’s growth potential and robust operational performance. This positive trend is expected to continue, making LabCorp a compelling choice for investors seeking steady growth.