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Laboratory Corporation: Trying To Create Value By Spinning Out Fortrea


  • Laboratory Corporation of America Holdings shares have been hurt by the boom-bust cycle induced by the pandemic.
  • Tough comparables should run off in the coming quarters, as the company is simplifying the business with the Fortrea spinoff.
  • Overall valuations look quite reasonable, amidst modest leverage ratios, which makes me upbeat with earnings growth set to return in the coming quarters.
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Labcorp office in San Diego, CA, USA.


Shares of Laboratory Corporation of America Holdings (NYSE:LH) fell overnight from $240 to the $200s, which is not as bad as it looks, as the company has effectuated the spinoff of Fortrea Holdings Inc. (

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Comments (5)

yardbird99 profile picture
I thought CRO is high margin. How does this deal create value?
Edward J. Roche profile picture
@yardbird99 The idea of spin offs is that the spun out company will command a higher valuation than it did as part of the parent business.
LH is planning to increase its dividend and increase share buybacks as well.
yardbird99 profile picture
@Edward J. Roche Thanks. I understand now. LH + FTRE will (hopefully) have a higher value than LH by itself with the CRO. And holders of LH will now own both, separately. But LH by itself might deserve a lower PE(?).
Edward J. Roche profile picture
LH valuation is quite modest now. Covid testing is decreasing fast but now patients are going back for other treatments since the worries about getting Covid have decreased. These other treatments will require lab testing.

I wrote an article (published yesterday) about Fortrea. I also have a call into LH Investor Relations to get clarification on a couple key points;

- Labcorp Drug Development had about $5B in annual revenues but Fortrea only has $3.1 B. That implies some parts of Labcorp Drug Development are being retained by LH. What are those?

- the valuation of FTRE appears to be very low with a p/s near one and a p/EBITDA around 7 which are much lower than peer companies. Why is that?

Appreciate any thoughts on those.

I own both LH and FTREA.

Thanks for a article.
The Value Investor profile picture
@Edward J. Roche Thanks, keen to have a decent look at FTREA as well, although info is a bit limited.
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