Declines in COVID-19 Testing Weigh on LabCorp's Third-Quarter Results; No Change to Our FVE

LabCorp’s third-quarter results fell short of FactSet consensus expectations and management slightly dialed down its outlook causing shares to bobble. Though we’ve made incremental adjustments to our expectations for the full year, these changes weren’t material enough to shift our $271 fair value estimate. We were pleased to see the firm make progress on its planned spinoff of the drug development business, which is now likely to take place sooner than expected in mid-2023. Nonetheless, we are confident the soon-to-be standalone LabCorp’s narrow economic moat remains intact. We see little to change our view of the cost advantage LabCorp enjoys (along with rival Quest Diagnostics) in its reference lab segment thanks to its outsize scale that smaller independent labs have failed to replicate.