The Strong Earnings Posted By Labcorp Holdings (NYSE:LH) Are A Good Indication Of The Strength Of The Business

Even though Labcorp Holdings Inc. (NYSE:LH ) posted strong earnings, investors appeared to be underwhelmed. We have done some analysis and have found some comforting factors beneath the profit numbers.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

The Impact Of Unusual Items On Profit

To properly understand Labcorp Holdings' profit results, we need to consider the US$146m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Labcorp Holdings to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Labcorp Holdings' Profit Performance

Because unusual items detracted from Labcorp Holdings' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Labcorp Holdings' earnings potential is at least as good as it seems, and maybe even better! Furthermore, it has done a great job growing EPS over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Labcorp Holdings at this point in time. In terms of investment risks, we've identified 2 warning signs with Labcorp Holdings, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Labcorp Holdings' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.