In line with its announcement in Apr 2013,
) recently completed the acquisition of lab-related clinical
outreach service operations of Calif-based Dignity Health.
However, the hospital-based laboratories of Dignity Health are
not included in the deal.
Although the financial terms of the deal were not disclosed,
Quest Diagnostics believes that this acquisition (the third
laboratory business acquired in 2013) is consistent with its
strategy of delivering 1%-2% growth from acquisitions. The
acquisition is also a part of the company's recently initiated
five-pronged strategy, which includes disciplined capital
Quest Diagnostics expects the transaction to be neutral to
2013 adjusted earnings and modestly accretive to the 2014 bottom
line. It also expects this acquisition to contribute around 0.5%
to its annualized revenues. This acquisition includes patient
service centers and associated businesses. It would enable the
company to perform testing through its clinical laboratories in
California and Nevada.
The company true to its strategy has been acquiring businesses
lately. In May, the company acquired the toxicology and clinical
laboratory business from Concentra, a subsidiary of Humana, Inc.
Again in January the company acquired the clinical and
anatomic-pathology outreach laboratory businesses of Mass-based
UMass Memorial Medical Center.
We appreciate the company's recently implemented restructuring
programs that would drive operational efficiency and accelerate
growth. Effective from Jan 1, 2013, Quest Diagnostics is
reporting through two new business groups - Diagnostic
Information Services and Diagnostic Solutions - replacing the
company's traditional reporting structure.
We are optimistic about the company's strategy to refocus on
Diagnostic Information Services along with the organizational
changes implemented by Quest Diagnostics' new CEO, Steve
Rusckowski. We also expect these changes to successfully add
synergies to its ongoing $500 million restructuring initiative,
associated with the Invigorate program.
However, we remain cautious about Quest Diagnostics as it
continues to face weak testing volume. Concerns also linger about
the soft industry trends due to a decline in physician office
visits, flat pricing and low organic revenues. The stock retains
a Zacks Rank #3 (Hold).
While we prefer to remain on the sidelines on Quest
Diagnostics, other medical device stocks worth a look are
Myriad Genetics Inc.
Natus Medical Inc.
). All the three stocks carry a Zacks Rank #1 (Strong Buy).
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