AMC Networks Inc (AMCX) & The Rest of Friday’s Top Upgrades & Downgrades

LabCorp could blow up
Finally, we turn to the one stock on today’s list that’s getting black marks on Wall Street: Medical testing giant Laboratory (NYSE:LH) Corporation of America — or “LabCorp.” The stock just hit a 52-week high, but according to analysts at WallachBeth, that’s really just your cue to start heading for the exits. Wallach sees potential for LabCorp to inch up maybe a few dollars more over the coming months — say, to $97 or so. But with the stock already within spitting distance of that price today, Wallach sees little reason to go sinking more money into LabCorp.

I agree… but with reservations. LabCorp is an excellent business, you see. Like Bankrate Inc (NYSE:RATE), it generates far more real cash profit than GAAP rules allow it to claim as “net income” — $667 million last year alone, or about $1.14 in cash profit for every $1 of accounting profit that shows up on its income statement.

Problem is, even with all this free cash flow, the stock’s $8.7 billion market cap looks overenthusiastic. I calculate about a 16 P/E ratio on this stock, and a P/FCF ratio of 13. Both valuations suggest the stock is too richly priced for its 10% projected growth rate. That being the case, I’m forced to agree with WallachBeth. At best, this stock is a hold at today’s prices. More cautious investors should even consider selling, perhaps with an eye to getting back in at better prices, after the inevitable stock market sell-off.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Laboratory of America.

The article Friday’s Top Upgrades (and Downgrades) originally appeared on Fool.com.

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