LabCorp's Base Businesses Show Strength as Pandemic Tests Fall; We've Raised Our Fair Value Estimate

LabCorp delivered another eye-popping quarter thanks to COVID-19 testing but has also begun to see softening in demand, in keeping with expectations for a deceleration in pandemic PCR testing through the second half of 2021. We’ve boosted our fair value estimate to $247 per share to reflect stronger growth in the non-pandemic testing and the drug development business than we’d expected. The impact of the pandemic has only underscored LabCorp’s significant cost advantage that provides the basis of its narrow economic moat. While quarterly diagnostic revenue rose 62% year over year, adjusted operating margin in this segment increased nearly four-fold, driven primarily by increased COVID-19 test volume.