Laboratory Corporation of America Holdings ( LH ) has entered into a new $1 billion credit facility consisting of a five-year Revolving Facility in the principal amount of $1.0 billion. Besides general corporate purposes, the new facility will be used for capital expenditures, acquisitions, funding of share repurchases and repayment of outstanding amounts under the previous revolving credit facility and term loan.
LabCorp has borrowed $560.0 million under the Revolving Facility and $37.4 million of Letters of Credit has been extended under the new facility.
LabCorp is quite well capitalized on the liquidity front. The company exited the most recent quarter with cash and short-term investment of $85.8 million ($230.7 million at the end of 2010). At the end of September 2011, the company's debt level was $2 billion without any borrowings outstanding under the Revolving Credit Facility.
Moreover, cash flow trends of the company remain robust with free cash flow for the first nine months coming in at $510.9 million, excluding the Hunter Labs settlement of $49.5 million. Cash flow was nonetheless reduced by $28 million due to delays in the Genzyme Genetics enrollment process and billing conversion.
The company is confident that these delays will be resolved in the fourth quarter. It reiterated 2011 operating cash flow guidance of $900 million (excluding the Hunter Labs settlement). LabCorp anticipates a healthy rise in free cash in 2012-2013 as Genzyme Genetics starts contributing to the bottom line.
The company has been using its cash for strategic acquisitions and rewarding its shareholders through share repurchases.During the most recent quarter, the company repurchased 1.8 million shares for $152 million and was left with $256.5 million of repurchase authorization. LabCorp is interested in acquisitions in the field of pathology, including hematopathology.
In this regard, LabCorp recently completed the acquisition of Orchid Cellmark for $85.4 million, all in cash. Orchid Cellmark provides DNA testing services targeted towards forensic and family relationship applications on a global basis. This deal would enable LabCorp to command a leading position in identity testing in the US and also establish its presence in this field in the UK.
LabCorp, in a drive to diversify from the more mature core testing, has of late put more and more emphasis on specialized testing and has resorted to the inorganic route to achieve this objective. Its competitor, Quest Diagnostics ( DGX ), is also striving for a greater share of the high-margined, specialized testing business.
We are currently Neutral on LabCorp, which also corresponds with the Zacks #3 Rank (Hold) in the short term. For Quest Diagnostics, we have a Neutral recommendation.
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