Intrinsic value of Laboratory of America Holdings - LH

Previous Close

$153.91

  Intrinsic Value

$132.21

stock screener

  Rating & Target

hold

-14%

  Value-price divergence*

-92%

Previous close

$153.91

 
Intrinsic value

$132.21

 
Up/down potential

-14%

 
Rating

hold

 
Value-price divergence*

-92%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of LH stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 15.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  11.08
  3.30
  3.47
  3.62
  3.76
  3.88
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
Revenue, $m
  9,642
  9,960
  10,306
  10,679
  11,081
  11,511
  11,971
  12,462
  12,983
  13,538
  14,125
  14,748
  15,407
  16,103
  16,838
  17,615
  18,434
  19,298
  20,208
  21,167
  22,176
  23,239
  24,358
  25,535
  26,773
  28,076
  29,445
  30,885
  32,399
  33,990
  35,662
Variable operating expenses, $m
 
  6,672
  6,881
  7,107
  7,350
  7,611
  7,889
  8,186
  8,502
  8,838
  9,193
  8,928
  9,327
  9,748
  10,194
  10,664
  11,159
  11,682
  12,233
  12,814
  13,425
  14,069
  14,746
  15,458
  16,208
  16,996
  17,825
  18,697
  19,614
  20,577
  21,589
Fixed operating expenses, $m
 
  1,948
  1,996
  2,046
  2,097
  2,150
  2,203
  2,259
  2,315
  2,373
  2,432
  2,493
  2,555
  2,619
  2,685
  2,752
  2,821
  2,891
  2,963
  3,037
  3,113
  3,191
  3,271
  3,353
  3,437
  3,522
  3,611
  3,701
  3,793
  3,888
  3,985
Total operating expenses, $m
  8,329
  8,620
  8,877
  9,153
  9,447
  9,761
  10,092
  10,445
  10,817
  11,211
  11,625
  11,421
  11,882
  12,367
  12,879
  13,416
  13,980
  14,573
  15,196
  15,851
  16,538
  17,260
  18,017
  18,811
  19,645
  20,518
  21,436
  22,398
  23,407
  24,465
  25,574
Operating income, $m
  1,312
  1,341
  1,428
  1,526
  1,633
  1,751
  1,878
  2,017
  2,166
  2,327
  2,500
  3,327
  3,525
  3,735
  3,960
  4,200
  4,454
  4,724
  5,011
  5,315
  5,638
  5,980
  6,341
  6,724
  7,129
  7,557
  8,009
  8,487
  8,992
  9,525
  10,088
EBITDA, $m
  1,811
  2,213
  2,308
  2,414
  2,531
  2,658
  2,797
  2,947
  3,108
  3,282
  3,468
  3,667
  3,880
  4,107
  4,348
  4,606
  4,879
  5,169
  5,477
  5,803
  6,149
  6,515
  6,903
  7,313
  7,746
  8,204
  8,688
  9,199
  9,739
  10,309
  10,910
Interest expense (income), $m
  211
  190
  199
  209
  221
  233
  246
  260
  274
  290
  307
  324
  343
  363
  384
  406
  430
  454
  480
  508
  537
  567
  599
  633
  668
  706
  745
  786
  830
  875
  923
Earnings before tax, $m
  1,106
  1,151
  1,229
  1,316
  1,412
  1,518
  1,633
  1,757
  1,892
  2,037
  2,193
  3,002
  3,181
  3,372
  3,576
  3,793
  4,024
  4,270
  4,531
  4,808
  5,101
  5,412
  5,742
  6,091
  6,461
  6,851
  7,264
  7,701
  8,163
  8,650
  9,165
Tax expense, $m
  373
  311
  332
  355
  381
  410
  441
  474
  511
  550
  592
  811
  859
  911
  966
  1,024
  1,087
  1,153
  1,223
  1,298
  1,377
  1,461
  1,550
  1,645
  1,744
  1,850
  1,961
  2,079
  2,204
  2,336
  2,474
Net income, $m
  732
  840
  897
  961
  1,031
  1,108
  1,192
  1,283
  1,381
  1,487
  1,601
  2,192
  2,322
  2,462
  2,611
  2,769
  2,938
  3,117
  3,307
  3,510
  3,724
  3,951
  4,192
  4,447
  4,716
  5,001
  5,303
  5,622
  5,959
  6,315
  6,690

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  434
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  14,247
  14,270
  14,765
  15,300
  15,875
  16,492
  17,151
  17,853
  18,601
  19,395
  20,237
  21,129
  22,072
  23,070
  24,124
  25,236
  26,410
  27,647
  28,951
  30,325
  31,771
  33,294
  34,897
  36,583
  38,357
  40,223
  42,185
  44,248
  46,417
  48,696
  51,092
Adjusted assets (=assets-cash), $m
  13,813
  14,270
  14,765
  15,300
  15,875
  16,492
  17,151
  17,853
  18,601
  19,395
  20,237
  21,129
  22,072
  23,070
  24,124
  25,236
  26,410
  27,647
  28,951
  30,325
  31,771
  33,294
  34,897
  36,583
  38,357
  40,223
  42,185
  44,248
  46,417
  48,696
  51,092
Revenue / Adjusted assets
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
  0.698
Average production assets, $m
  5,096
  5,259
  5,441
  5,639
  5,851
  6,078
  6,321
  6,580
  6,855
  7,148
  7,458
  7,787
  8,135
  8,502
  8,891
  9,301
  9,733
  10,189
  10,670
  11,176
  11,709
  12,270
  12,861
  13,483
  14,136
  14,824
  15,547
  16,307
  17,107
  17,947
  18,830
Working capital, $m
  651
  797
  824
  854
  886
  921
  958
  997
  1,039
  1,083
  1,130
  1,180
  1,233
  1,288
  1,347
  1,409
  1,475
  1,544
  1,617
  1,693
  1,774
  1,859
  1,949
  2,043
  2,142
  2,246
  2,356
  2,471
  2,592
  2,719
  2,853
Total debt, $m
  5,850
  5,685
  5,983
  6,304
  6,650
  7,021
  7,417
  7,839
  8,288
  8,765
  9,271
  9,807
  10,375
  10,974
  11,607
  12,276
  12,981
  13,725
  14,509
  15,334
  16,204
  17,119
  18,082
  19,096
  20,162
  21,283
  22,462
  23,702
  25,006
  26,376
  27,815
Total liabilities, $m
  8,741
  8,576
  8,874
  9,195
  9,541
  9,912
  10,308
  10,730
  11,179
  11,656
  12,162
  12,698
  13,266
  13,865
  14,498
  15,167
  15,872
  16,616
  17,400
  18,225
  19,095
  20,010
  20,973
  21,987
  23,053
  24,174
  25,353
  26,593
  27,897
  29,267
  30,706
Total equity, $m
  5,506
  5,694
  5,891
  6,105
  6,334
  6,580
  6,843
  7,123
  7,422
  7,739
  8,074
  8,430
  8,807
  9,205
  9,625
  10,069
  10,537
  11,031
  11,551
  12,100
  12,677
  13,284
  13,924
  14,597
  15,305
  16,049
  16,832
  17,655
  18,520
  19,430
  20,386
Total liabilities and equity, $m
  14,247
  14,270
  14,765
  15,300
  15,875
  16,492
  17,151
  17,853
  18,601
  19,395
  20,236
  21,128
  22,073
  23,070
  24,123
  25,236
  26,409
  27,647
  28,951
  30,325
  31,772
  33,294
  34,897
  36,584
  38,358
  40,223
  42,185
  44,248
  46,417
  48,697
  51,092
Debt-to-equity ratio
  1.062
  1.000
  1.020
  1.030
  1.050
  1.070
  1.080
  1.100
  1.120
  1.130
  1.150
  1.160
  1.180
  1.190
  1.210
  1.220
  1.230
  1.240
  1.260
  1.270
  1.280
  1.290
  1.300
  1.310
  1.320
  1.330
  1.330
  1.340
  1.350
  1.360
  1.360
Adjusted equity ratio
  0.367
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  732
  840
  897
  961
  1,031
  1,108
  1,192
  1,283
  1,381
  1,487
  1,601
  2,192
  2,322
  2,462
  2,611
  2,769
  2,938
  3,117
  3,307
  3,510
  3,724
  3,951
  4,192
  4,447
  4,716
  5,001
  5,303
  5,622
  5,959
  6,315
  6,690
Depreciation, amort., depletion, $m
  499
  872
  880
  889
  898
  908
  918
  930
  942
  955
  968
  340
  355
  371
  388
  406
  425
  445
  466
  488
  511
  536
  562
  589
  617
  647
  679
  712
  747
  784
  822
Funds from operations, $m
  962
  1,712
  1,777
  1,850
  1,929
  2,016
  2,110
  2,212
  2,323
  2,442
  2,569
  2,532
  2,678
  2,833
  2,999
  3,175
  3,363
  3,562
  3,773
  3,998
  4,235
  4,487
  4,753
  5,035
  5,334
  5,649
  5,982
  6,334
  6,706
  7,098
  7,513
Change in working capital, $m
  -214
  25
  28
  30
  32
  34
  37
  39
  42
  44
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  89
  94
  99
  104
  110
  115
  121
  127
  134
Cash from operations, $m
  1,176
  1,687
  1,750
  1,820
  1,897
  1,981
  2,073
  2,173
  2,281
  2,397
  2,522
  2,482
  2,625
  2,777
  2,940
  3,113
  3,297
  3,493
  3,701
  3,921
  4,154
  4,402
  4,664
  4,941
  5,234
  5,545
  5,872
  6,219
  6,585
  6,971
  7,379
Maintenance CAPEX, $m
  0
  -223
  -230
  -238
  -246
  -255
  -265
  -276
  -287
  -299
  -312
  -326
  -340
  -355
  -371
  -388
  -406
  -425
  -445
  -466
  -488
  -511
  -536
  -562
  -589
  -617
  -647
  -679
  -712
  -747
  -784
New CAPEX, $m
  -279
  -163
  -182
  -197
  -212
  -227
  -243
  -259
  -275
  -293
  -310
  -329
  -348
  -368
  -388
  -410
  -432
  -456
  -481
  -506
  -533
  -561
  -591
  -622
  -654
  -688
  -723
  -760
  -799
  -840
  -883
Cash from investing activities, $m
  -796
  -386
  -412
  -435
  -458
  -482
  -508
  -535
  -562
  -592
  -622
  -655
  -688
  -723
  -759
  -798
  -838
  -881
  -926
  -972
  -1,021
  -1,072
  -1,127
  -1,184
  -1,243
  -1,305
  -1,370
  -1,439
  -1,511
  -1,587
  -1,667
Free cash flow, $m
  380
  1,301
  1,338
  1,385
  1,439
  1,499
  1,565
  1,638
  1,718
  1,805
  1,899
  1,828
  1,937
  2,054
  2,180
  2,315
  2,459
  2,612
  2,775
  2,949
  3,133
  3,329
  3,537
  3,758
  3,992
  4,240
  4,502
  4,780
  5,073
  5,384
  5,712
Issuance/(repayment) of debt, $m
  -667
  269
  298
  321
  346
  371
  396
  422
  449
  477
  506
  536
  567
  600
  633
  669
  705
  744
  784
  826
  869
  915
  963
  1,014
  1,066
  1,121
  1,179
  1,240
  1,303
  1,370
  1,440
Issuance/(repurchase) of shares, $m
  27
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -650
  269
  298
  321
  346
  371
  396
  422
  449
  477
  506
  536
  567
  600
  633
  669
  705
  744
  784
  826
  869
  915
  963
  1,014
  1,066
  1,121
  1,179
  1,240
  1,303
  1,370
  1,440
Total cash flow (excl. dividends), $m
  -283
  1,570
  1,635
  1,706
  1,784
  1,869
  1,961
  2,061
  2,168
  2,282
  2,405
  2,364
  2,504
  2,654
  2,814
  2,983
  3,164
  3,355
  3,559
  3,774
  4,003
  4,245
  4,501
  4,772
  5,058
  5,361
  5,681
  6,019
  6,377
  6,754
  7,152
Retained Cash Flow (-), $m
  -561
  -188
  -198
  -213
  -230
  -246
  -263
  -280
  -298
  -317
  -336
  -356
  -377
  -398
  -420
  -444
  -468
  -494
  -520
  -548
  -577
  -608
  -640
  -673
  -708
  -744
  -783
  -823
  -865
  -910
  -956
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  1,382
  1,438
  1,493
  1,555
  1,623
  1,698
  1,780
  1,869
  1,966
  2,069
  2,008
  2,128
  2,256
  2,393
  2,540
  2,696
  2,862
  3,038
  3,226
  3,426
  3,637
  3,861
  4,099
  4,350
  4,617
  4,898
  5,196
  5,511
  5,844
  6,196
Discount rate, %
 
  7.40
  7.77
  8.16
  8.57
  8.99
  9.44
  9.92
  10.41
  10.93
  11.48
  12.05
  12.66
  13.29
  13.95
  14.65
  15.38
  16.15
  16.96
  17.81
  18.70
  19.63
  20.62
  21.65
  22.73
  23.87
  25.06
  26.31
  27.63
  29.01
  30.46
PV of cash for distribution, $m
 
  1,287
  1,238
  1,180
  1,119
  1,055
  988
  918
  846
  773
  698
  574
  509
  446
  384
  327
  273
  224
  181
  143
  111
  84
  62
  45
  32
  22
  15
  9
  6
  4
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Laboratory Corporation of America Holdings operates as an independent clinical laboratory company worldwide. It operates through two segments, LabCorp Diagnostics and Covance Drug Development. The company offers a range of clinical laboratory tests and procedures, such as blood chemistry analyses, urinalyses, blood cell counts, thyroid tests, Pap tests, hemoglobin A1C, PSA, tests for sexually-transmitted diseases, HCV tests, vitamin D, microbiology cultures and procedures, and alcohol and other substance-abuse tests that are used by hospitals, physicians and other healthcare providers and commercial clients to assist in the diagnosis, monitoring and treatment of diseases and medical conditions through the examination of substances in blood, tissues, and other specimens. It also provides specialty testing services in the areas of women's health, allergy, diagnostic genetics, cardiovascular disease, infectious disease, endocrinology, oncology, coagulation, pharmacogenetics, toxicology, and pain management; and esoteric testing, cancer diagnostics, and other complex procedures. In addition, the company provides drug development solutions, as well as laboratory testing services. Further, it provides its testing services through a sales force to the managed care organizations, biopharmaceutical companies, governmental agencies, physicians and other healthcare providers, hospitals and health systems, employers, patients and consumers, contract research organizations, food and nutritional companies, and independent clinical laboratories. The company has collaboration with university, hospital and academic institutions, such as Duke University, Johns Hopkins University, Boston University, Columbia University, The Mount Sinai Hospital, the University of Tennessee, and Yale University to license and commercialize new diagnostic tests. Laboratory Corporation of America Holdings was founded in 1971 and is headquartered in Burlington, North Carolina.

FINANCIAL RATIOS  of  Laboratory of America Holdings (LH)

Valuation Ratios
P/E Ratio 21.6
Price to Sales 1.6
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 13.4
Price to Free Cash Flow 17.6
Growth Rates
Sales Growth Rate 11.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9%
Cap. Spend. - 3 Yr. Gr. Rate 6.7%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 96.3%
Total Debt to Equity 106.2%
Interest Coverage 6
Management Effectiveness
Return On Assets 6.2%
Ret/ On Assets - 3 Yr. Avg. 6.5%
Return On Total Capital 6.5%
Ret/ On T. Cap. - 3 Yr. Avg. 6.9%
Return On Equity 14%
Return On Equity - 3 Yr. Avg. 14.8%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 33%
Gross Margin - 3 Yr. Avg. 34.4%
EBITDA Margin 18.8%
EBITDA Margin - 3 Yr. Avg. 18%
Operating Margin 13.6%
Oper. Margin - 3 Yr. Avg. 13.4%
Pre-Tax Margin 11.5%
Pre-Tax Margin - 3 Yr. Avg. 11.2%
Net Profit Margin 7.6%
Net Profit Margin - 3 Yr. Avg. 7%
Effective Tax Rate 33.7%
Eff/ Tax Rate - 3 Yr. Avg. 36.9%
Payout Ratio 0%

LH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LH stock intrinsic value calculation we used $9642 million for the last fiscal year's total revenue generated by Laboratory of America Holdings. The default revenue input number comes from 2016 income statement of Laboratory of America Holdings. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LH stock valuation model: a) initial revenue growth rate of 3.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.4%, whose default value for LH is calculated based on our internal credit rating of Laboratory of America Holdings, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Laboratory of America Holdings.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LH stock the variable cost ratio is equal to 67.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1900 million in the base year in the intrinsic value calculation for LH stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Laboratory of America Holdings.

Corporate tax rate of 27% is the nominal tax rate for Laboratory of America Holdings. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LH stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LH are equal to 52.8%.

Life of production assets of 22.9 years is the average useful life of capital assets used in Laboratory of America Holdings operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LH is equal to 8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $5506 million for Laboratory of America Holdings - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 102.564 million for Laboratory of America Holdings is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Laboratory of America Holdings at the current share price and the inputted number of shares is $15.8 billion.

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COMPANY NEWS

▶ LabCorp prices $1.2 billion debt offering   [Aug-17-17 11:10AM  American City Business Journals]
▶ Company News For August 1, 2017   [Aug-01-17 10:54AM  Zacks]
▶ LabCorp to take over Chiltern in $1.2 billion deal   [10:59AM  American City Business Journals]
▶ [$$] LabCorp to Buy Chiltern for $1.2 Billion   [07:39AM  The Wall Street Journal]
▶ LabCorp tops Street 2Q forecasts   [Jul-26-17 08:46PM  Associated Press]
▶ Health-Care Stocks Get a Boost From Senate Bill Rollout   [Jun-22-17 12:22PM  The Wall Street Journal]
▶ [$$] Pamplona Capital Management Nears Deal to Buy Parexel   [Jun-20-17 04:30AM  The Wall Street Journal]
▶ LabCorp asks for dismissal of class-action lawsuit claiming it overcharges patients   [Jun-12-17 02:52PM  American City Business Journals]
▶ LabCorp completes acquisition of 1,600-employee Washington firm   [May-05-17 07:00AM  American City Business Journals]
▶ LabCorp beats Street 1Q forecasts   [07:02AM  Associated Press]
▶ Class-action lawsuit claims LabCorp overcharges patients for tests   [Apr-10-17 11:50AM  American City Business Journals]
▶ How much of a pay raise did LabCorp's David King get in 2016?   [07:55AM  American City Business Journals]
▶ College hires leader for Biotechnology Center of Excellence   [Mar-15-17 07:56PM  at bizjournals.com]
▶ College hires leader for Biotechnology Center of Excellence   [07:56PM  American City Business Journals]
▶ CellNetix buys back stake from PAML ahead of LabCorp deal   [Mar-03-17 04:15PM  at bizjournals.com]
▶ LabCorp to buy 1,600-employee Washington firm   [Feb-23-17 05:38PM  at bizjournals.com]
▶ Laboratory Corporation 4Q Earnings Beats Street   [01:05PM  at Investopedia]
▶ LabCorp to acquire Washington company, per report   [09:43AM  at bizjournals.com]
Stock chart of LH Financial statements of LH
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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