Labcorp (LH)

Healthcare diagnostics company Labcorp Holdings (NYSE:LH) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 8.6% year on year to $3.56 billion. Its non-GAAP profit of $4.18 per share was 1% above analysts’ consensus estimates.

Company Overview

With over 600 million tests performed annually and involvement in 90% of FDA-approved drugs in 2023, Labcorp (NYSE:LH) provides laboratory testing services and drug development solutions to doctors, hospitals, pharmaceutical companies, and patients worldwide.

The testing and diagnostics services industry plays a crucial role in disease detection, monitoring, and prevention, serving hospitals, clinics, and individual consumers. This sector benefits from stable demand, driven by an aging population, increased prevalence of chronic diseases, and growing awareness of preventive healthcare. Recurring revenue streams come from routine screenings, lab tests, and diagnostic imaging, with reimbursement from Medicare, Medicaid, private insurance, and out-of-pocket payments. However, the industry faces challenges such as pricing pressures, regulatory compliance, and the need for continuous investment in new testing technologies. Looking ahead, industry tailwinds include the expansion of personalized medicine, increased adoption of at-home and rapid diagnostic tests, and advancements in AI-driven diagnostics that enhance accuracy and efficiency. However, headwinds such as reimbursement uncertainties, competition from decentralized testing solutions, and regulatory scrutiny over test validity and cost-effectiveness may impact profitability. Adapting to evolving healthcare models and integrating automation will be key for sustaining growth and maintaining operational efficiency.

Labcorp's main competitors include Quest Diagnostics (NYSE:DGX) in clinical laboratory services, and IQVIA (NYSE:IQV), Charles River Laboratories (NYSE:CRL), and Syneos Health in the drug development and clinical trials space.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $13.77 billion in revenue over the past 12 months, Labcorp has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Labcorp’s sales grew at a tepid 2% compounded annual growth rate over the last five years. This fell short of our benchmarks and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Labcorp’s annualized revenue growth of 6.8% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Labcorp’s organic revenue averaged 3.9% year-on-year growth. Because this number is lower than its two-year revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Labcorp grew its revenue by 8.6% year on year, and its $3.56 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.6% over the next 12 months, similar to its two-year rate. We still think its growth trajectory is satisfactory given its scale and suggests the market is forecasting success for its products and services.

Labcorp has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 13.2%, higher than the broader healthcare sector.

Looking at the trend in its profitability, Labcorp’s operating margin decreased by 13.4 percentage points over the last five years, but it rose by 2.4 percentage points on a two-year basis. Still, shareholders will want to see Labcorp become more profitable in the future.

In Q3, Labcorp generated an operating margin profit margin of 11.1%, up 3.4 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Labcorp’s flat EPS over the last five years was below its 2% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of Labcorp’s earnings can give us a better understanding of its performance. As we mentioned earlier, Labcorp’s operating margin expanded this quarter but declined by 13.4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Labcorp reported adjusted EPS of $4.18, up from $3.50 in the same quarter last year. This print beat analysts’ estimates by 1%. Over the next 12 months, Wall Street expects Labcorp’s full-year EPS of $15.82 to grow 8.8%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Labcorp has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 11% over the last five years, better than the broader healthcare sector.

Taking a step back, we can see that Labcorp’s margin dropped by 6.7 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal it is in the middle of an investment cycle.

Labcorp’s free cash flow clocked in at $280.5 million in Q3, equivalent to a 7.9% margin. This result was good as its margin was 3 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Labcorp’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 9.1%, slightly better than typical healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Labcorp’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Labcorp reported $598.1 million of cash and $6.53 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.31 billion of EBITDA over the last 12 months, we view Labcorp’s 2.6× net-debt-to-EBITDA ratio as safe. We also see its $100.8 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Labcorp narrowly top analysts’ organic revenue expectations this quarter. Full-year EPS was slightly raised. Zooming out, we think this was a decent quarter. The market seemed to be hoping for more, and the stock traded down 2.4% to $269 immediately following the results.

Updated: December 4, 2025 at 10:52 PM EST

Before investing in or passing on Labcorp, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Labcorp isn’t a terrible business, but it doesn’t pass our bar. To begin with, its revenue growth was uninspiring over the last five years. And while its sturdy operating margins show it has disciplined cost controls, the downside is its declining adjusted operating margin shows the business has become less efficient. On top of that, its diminishing returns show management's prior bets haven't worked out.

Labcorp’s P/E ratio based on the next 12 months is 15.5x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $299.71 on the company (compared to the current share price of $261.47).