Is It Too Late To Consider Labcorp After Its Strong Multi Year Share Price Rally?

• Wondering if Labcorp Holdings is still a smart buy at around $265 a share, or if the easy money has already been made? Let us unpack whether the current price really reflects the quality of this business.
• The stock is up 16.5% year to date and 60.1% over 5 years, even after a modest 0.9% pullback over the last week. This suggests long term investors have already been rewarded, while short term sentiment is cooling slightly.
• Recently, the market has been reacting to Labcorp's ongoing push to expand its diagnostics network and deepen partnerships with hospital systems, which investors see as a way to lock in more stable, recurring demand. At the same time, regulatory scrutiny and shifting healthcare policy in the US have kept a mild cloud of uncertainty over the wider diagnostics and lab testing space, influencing how investors price risk for companies like Labcorp.
• On our framework of 6 valuation checks, Labcorp scores a solid 4 out of 6. This hints at an opportunity that is good but not flawless. Next we will walk through the standard valuation approaches behind that score, before finishing with a more nuanced way to think about what Labcorp might really be worth over the long run.

Labcorp Holdings delivered 13.3% returns over the last year. See how this stacks up to the rest of the Healthcare industry.

Approach 1: Labcorp Holdings Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business is worth by projecting the cash it can generate in the future and then discounting those cash flows back to today, using a required rate of return.

For Labcorp Holdings, the latest twelve month free cash flow is about $1.32 billion, providing a solid base of cash generation. Analysts and Simply Wall St then project these cash flows forward in two stages, with explicit estimates for the next few years and extrapolated growth beyond that. On this view, Labcorp’s annual free cash flow could rise to roughly $2.39 billion by 2035 as its diagnostics and lab operations scale.

When all those future cash flows are discounted back to today, the resulting intrinsic value comes out at about $574.63 per share, compared with a current market price near $265. That implies the stock is trading at roughly a 53.7% discount to its estimated fair value, which indicates the market may be pricing Labcorp materially below its long term cash generation potential.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Labcorp Holdings is undervalued by 53.7%. Track this in your watchlist or portfolio, or discover 925 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Labcorp Holdings.

Approach 2: Labcorp Holdings Price vs Earnings

For profitable companies like Labcorp, the price to earnings ratio is a useful shorthand for how much investors are willing to pay for each dollar of current earnings. What counts as a fair PE depends on how fast those earnings are expected to grow and how risky or cyclical the business is, with higher growth and lower risk typically justifying a higher multiple.

Labcorp currently trades on a PE of about 25.78x, which is above the broader Healthcare industry average of roughly 22.14x but below the peer group average of about 29.88x. Simply Wall St also calculates a Fair Ratio of around 27.75x, which estimates the PE the market should pay given Labcorp’s specific mix of earnings growth, margins, industry, size and risk profile. This Fair Ratio is more tailored than a simple peer or industry comparison because it adjusts for the company’s own fundamentals rather than assuming all Healthcare stocks deserve the same multiple.

Comparing the Fair Ratio of 27.75x with the current PE of 25.78x suggests Labcorp trades at a modest discount to what its earnings profile might warrant, which may indicate a mildly favorable entry point for long term investors.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Labcorp Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of Labcorp Holdings with a clear financial forecast and an explicit fair value estimate. A Narrative is the story behind your numbers, where you spell out how you think Labcorp’s revenue, earnings and margins will evolve, then see how that translates into a projected fair value per share. On Simply Wall St’s Community page, used by millions of investors, you can easily create or explore Narratives that link Labcorp’s real world developments, like hospital partnerships or AI enabled diagnostics, to detailed forecasts and compare the resulting Fair Value with today’s share price to help inform a decision on whether to buy, hold or sell. These Narratives automatically update as new news, earnings and guidance arrive, so your view stays dynamic rather than static. For example, one Labcorp Narrative might assume strong upside from AI powered cancer detection and share buybacks and arrive at a fair value near $325, while a more cautious view focused on regulatory and pricing risk might land closer to $260.

Do you think there's more to the story for Labcorp Holdings? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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