LH

LabCorp is a defensive, high-quality lab-testing franchise finally on the mend after the COVID-testing hangover and the mid-2023 Fortrea spin-off. FY2025 delivered record revenue of $14.0B (+7.2%), and the earnings recovery is real: operating income jumped +27.4% to $1.38B and diluted EPS rose +18.3% to $10.46, driven by genuine operating leverage — cost of revenues fell to 71.2% of sales from 72.1%, and SG&A dropped to 15.9% from 17.1% as the Invitae integration and post-spin cost normalization played out. This is a durable, recession-resistant business (Dx $10.9B, BLS $3.1B) with ROE at a respectable 10.2% and modest leverage (liabilities/equity 1.13x). Management is returning cash: $450M in buybacks (+80%) and $241M in dividends, with the share count down 1.6%.

The caution is twofold. First, quality of the growth: total revenue growth of 7.2% is only 4.4% organic, with 2.5% bought via acquisitions — a fine but capital-intensive way to grow, and the +18% EPS/+27% operating-income figures are flattered by recovery off a depressed 2023-24 base rather than a sustainable run-rate. Net margin is still thin at 6.3%. Second, the balance sheet has softened at the edges: cash collapsed 65% to just $532M against ~$5.6B of total debt, though $1.64B of operating cash flow comfortably services it. Restructuring charges more than tripled to $127.2M (including $105.5M tied to the ED restructuring), a reminder that the efficiency story requires ongoing surgery.