LabCorp Rises on COVID-19 in Q4, but Pullback Is on Horizon; No Change to Our FVE

LabCorp saw another off-the-charts performance in the fourth quarter that exceeded our top- and bottom-line projections, but this is largely offset by our assumptions for a pullback in the diagnostic segment in 2021 as we move toward COVID-19 herd immunity. Therefore, we’re holding steady on our $209 fair value estimate. LabCorp has ridden the wave of COVID-19 testing, which thanks to relatively generous reimbursement has resulted in a bumper crop in 2020. As one of the largest independent labs, LabCorp ably demonstrated the value of its narrow economic moat, as it was able to increase capacity for SARS-CoV-2 PCR tests more quickly than smaller labs. In particular, the long-standing investments the firm has made in its information technology systems allowed LabCorp to more efficiently utilize its capacity, in our opinion, which also means it has been able to generally keep turnaround times low enough to meet Medicare requirements to receive full reimbursement.