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Laboratory Corporation of America (LabCorp) is one of the largest clinical laboratories in the world and offers more than 4000 routine and specialty tests on more than 370,000 specimens daily for over 220,000 clients nationwide. LabCorp is a pioneer as it has affiliated itself with some of the most advanced Genome research companies in the world and is the direct beneficiary of much of the pioneering research that is being done today. They do this by being a conduit between the researchers making the discoveries and the actual patient who needs to be tested. They in other words help make the discovery in the research lab, a reality in your doctor’s office. The company has developed specialty and niche businesses based on certain types of specialized testing capabilities and client requirements, such as oncology testing, HIV genotyping and phenotyping, diagnostic genetics and clinical research trials. Labcorp’s services are in great demand as its services are both essential and help provide a very cost effective way to control health care costs. The reason for this is because though testing represents only approximately 4 percent of health care expenditures, it actually influences more than 70 percent of health care decisions . Health care costs are expected to double over the next decade as the baby boomer generation enters their senior years. LabCorp should be able to grow their business exponentially as they are the best managed company in their field . Free cash flow per share (the most important indicator as far as FireRock Research is concerned) has gone from $1.41 in 2001 to our current 2008 estimate of $5.43. That for those keeping score is an annualized growth rate of 25.20%. The reason we can say that the company is well managed is because management has been able to grow the company’s free cash flow at such a great rate because they have controlled costs. This is evidenced by their capital expenditures as a percentage of cash flow averaging around 19% over the last five years. This may be the oportune time to step up to the plate on LabCorp as it is only trading at 14.27 times its 2008 free cash flow per share estimates. We also see LabCorp continuing its winning ways regardless of who wins the next Presidential election. If the Democrats win then they will increase the amount of spending on health care dramatically by bringing more people into the system and if the Republicans win they will try to control costs and will require more testing be done to cut costs on expensive medical procedures.
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