LabCorp Adjusts to New Normal Following COVID-19; No Change to Our Fair Value Estimate

LabCorp delivered full-year performance that generally hit our projections, with revenue of $14.9 billion hitting our estimate nearly on the nose. Although operating expenses were slightly lower than we’d expected, this had an immaterial effect on our valuation, and we’re holding steady on our fair value estimate. With the spinoff of LabCorp’s drug development arm on the horizon (now formally known as Fortrea), we think the remaining diagnostics business can still easily justify LabCorp’s narrow economic moat on the basis of cost advantage. LabCorp, along with Quest Diagnostics, will still be the two largest labs, by far. We see no factors that would impinge upon LabCorp’s ability to conduct tests that, on average, amount to roughly one third of what they cost at the hospital-based lab.