Lab testing firm LabCorp (NYSE:LH) closed out its fiscal year on a down note, with profit growth below historical levels. However, its long-term track record remains intact, and the valuation is reasonable.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Full Year Recap
Revenues advanced 10.8% to $5.5 billion and consisted of a combination of organic growth and acquisitions. Organically, testing volumes increased 1.2% and higher pricing through revenue per requisition, which increased 4.2%. Management detailed that it is in the process of integrating its "Westcliff, Orchid Cellmark and Genzyme Genetics acquisitions."

Operating income fell 3.1% to $948.4 million as LabCorp took more than $160 million in amortization, restructuring and other special charges. Backing out these charges, management estimated that operating income actually improved by 4.8% to $1.1 billion. Net income fell 6.9% to $519.7 million as higher interest expenses ate into the bottom line. This worked out to $5.11 per diluted share. Again, backing out charges, management detailed that earnings advanced 6.5% to $6.37 per diluted share. Free cash flow fell 6.2% to $709.9 million, or approximately $7 per diluted share. (To know more about income statements, read Understanding The Income Statement.)

For the coming year, LabCorp expects revenue growth of 2 to 3.5%. Analysts currently project $5.6 billion in sales for 2012. The company projects $6.75 to $7.05 and free cash flow of around $800 million, or $7.85 per diluted share.

The Bottom Line
LabCorp's stock has recovered from the depths of last fall, when it declined to less than $75 per share. However, at $90 per share, the shares are still well below highs of more than $100 in mid-2011. At the current price, they trade at a reasonable forward P/E of 13, and even more reasonable forward free cash flow multiple of only about 11.2.

Despite having largely consolidated the market for independent lab testing firms, LabCorp appears able to continue growing profits at a double digit clip. Over the past five years it has been able to leverage annual sales growth of less than 9% into an annual earnings growth of more than 14%. This easily bests archrival Quest Diagnostics (NYSE:DGX), which has grown sales 6% and profits less than 9% over this same period.

Hospitals, including HCA Holdings (NYSE:HCA) and Health Management Associates (NYSY:HMA), still garner the lion's share of testing volumes throughout the country. Bio-Reference Labs (Nasdaq:BRLI), a lab tester in the eastern United States, has managed to grow sales and profits in excess of 20% and may offer a better combination of growth potential at a reasonable valuation, with a forward P/E of 12. But LabCorp is likely a safer bet given its geographic diversity and strong track record of managing its business for growth. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!