Labcorp Holdings Inc.LHNYSE

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DCF Valuation

⚠️Model Warnings

•Revenue projections show 12% decline from peak. Analyst estimates may reflect secular headwinds or transition period.

DCF Valuation Summary

Strong Buy

Fair Value: $382.97 per share(market-calibrated)

+33.7%

Upside to Fair Value

Current

$286.47

Pure Model

$387.21

Fair Value

$382.97

Bull Case

$438.48

Bear Case

$333.80

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

2.42%

Calibrated Growth

2.86%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $387.21.

What's Driving This Ratingfor LH

✓

CapEx already efficient

CapEx at 3.33% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 12.08% — below the sector mature average of 20.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.3B (17.41% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 5.19% in Year 1 to -12.20% by Year 5 (per analyst consensus). That's below the 3.00% terminal rate, so growth re-accelerates in Years 6-10 — a generous assumption. This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $317.42/share (23.3x terminal FCF) while exit multiple gives $457.00/share (35.9x terminal FCF). The 24x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.00% growth is more conservative. The base case averages both methods.

✓

Model and market roughly agree

Market-implied terminal growth of 2.42% is close to the model's 3.00% (only 58bps apart). The DCF assumptions are well-aligned with how the market is pricing this stock.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 66.77% indicates efficient cash generation. FCF reaches $1.9B by Year 10 (14.51% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.00

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.98%

Cost of Debt

Pre-tax Cost of Debt2.84%

Tax Rate20.75%

After-tax Cost of Debt2.25%

Equity Weight (E/V)76.79%

Debt Weight (D/V)23.21%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (76.79% × 8.98%) + (23.21% × 2.25%)

= 7.42%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$14.7B	$16.2B	$15.2B	$13.0B	$13.0B
EBIT	$1.8B	$2.0B	$1.8B	$1.9B	$2.3B
Tax	$368M	$406M	$382M	$402M	$468M
NOPAT	$1.4B	$1.5B	$1.5B	$1.5B	$1.8B
+ Depreciation	$635M	$700M	$658M	$561M	$560M
- Capex	$488M	$538M	$506M	$432M	$431M
- Δ NWC	$70M	$77M	-$205M	-$82M	$37M
Free Cash Flow	$1.5B	$1.6B	$1.8B	$1.7B	$1.9B
Discount Factor	0.931	0.807	0.699	0.606	0.489
Present Value	$1.4B	$1.3B	$1.3B	$1.1B	$919M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.9B

Terminal Growth Rate3.00%

WACC7.42%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$43.8B

PV of Terminal Value$21.4B

Exit Multiple Method

Year 10 EBITDA$2.8B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$67.6B

PV of Terminal Value$33.0B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$11.7B

PV of Terminal Value$21.4B

Enterprise Value$33.1B

(-) Net Debt$6.7B

Equity Value$26.4B

Shares Outstanding83M

Price per Share$317.42

Exit Multiple Method

PV of Projected FCFs$11.7B

PV of Terminal Value$33.0B

Enterprise Value$44.7B

(-) Net Debt$6.7B

Equity Value$38.0B

Shares Outstanding83M

Price per Share$457.00

Pure Model Fair Value

$387.21

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
5.42%	$512.61	$547.78	$597.48	$653.67	$624.71
6.42%	$424.80	$443.42	$467.49	$499.79	$545.44
7.42%	$362.45	$373.57	$387.21	$404.32	$426.44
8.42%	$314.52	$321.69	$330.20	$340.43	$352.97
9.42%	$275.81	$280.71	$286.36	$292.97	$300.80

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$333.80

16.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 1.25

Base Case

$387.21

35.2% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 1.00

Bull Case

$438.48

53.1% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.85

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Healthcare Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth5.19%

Year 3 Revenue Growth5.15%

Year 5 Revenue Growth-12.20%

Year 7 Revenue Growth-6.12%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin12.08%

Terminal EBIT Margin20.00%

Tax Rate20.75%

Historical Capex / Rev3.33%

NWC / Revenue9.70%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 24x EV/EBITDA (Healthcare sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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