Quest Diagnostics DGX recently announced the completion of its acquisition of LifeLabs from OMERS. The transaction was valued at approximately $1 billion, including net debt.
The latest acquisition is aimed at enhancing access to diagnostic innovation for patients in North America.
Significance of LifeLabs Acquisition for DGX’s Business
The combination of LifeLabs' strong business and deep community presence with Quest Diagnostics’ specialized lab services and expertise creates an opportunity to generate growth. The acquisition should help improve care and outcomes for Canada's expanding and aging population.
Quest Diagnostics will provide LifeLabs with new expertise, innovations and resources to strengthen the services provided by the latter. In addition to fostering greater access to specialized tests, the two companies will work together to improve online appointment scheduling and accelerate patient service center processing. DGX will also support LifeLabs' data security enhancements while ensuring that Canadian patients' health data remain in Canada.
DGX expects the acquisition to generate approximately $710 million in annual revenues. The company anticipates the transaction to be slightly dilutive to GAAP earnings per share (EPS), primarily due to the amortization of intangibles and other items, but $0.10-$0.15 accretive to adjusted EPS in the first 12 months after closing.
Details of the Acquisition
Quest Diagnostics has acquired 100% of the equity of LifeLabs. The transaction meets all of DGX’s criteria on growth, profitability and returns. Post-acquisition, LifeLabs’ more than 6,500 employees will continue to operate under the LifeLabs brand and with the same management team and headquarters.
The transaction represents a significant achievement for OMERS and its members.
McCarthy Tétrault LLP served as legal advisor to Quest Diagnostics. Blake, Cassels & Graydon LLP served as a legal advisor to OMERS. Evercore and CIBC Capital Markets served as financial advisors to OMERS.
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Industry Prospects in Favor of DGX
Per a Market Research Future report, the global Clinical Laboratory Services market was valued at $252.36 billion in 2023 and is projected to reach $355.94 billion by 2032, exhibiting a CAGR of 3.9% during the period. Primary factors boosting market growth include a rising number of advancements in quick & inescapable testing and increasing frequencies of ongoing illnesses.
Quest Diagnostics’ latest acquisition turns out to be in favor of market growth.
Other Recent Developments by Quest Diagnostics
Earlier this month, Quest Diagnostics signed a definitive agreement to acquire select assets of University Hospitals' outreach laboratory services business. The transaction should help the company to broaden its access in Ohio to provide its innovative test menu, network of convenient patient access sites and broad health plan coverage.
In July 2024, Quest Diagnostics and Becton, Dickinson and Company announced a global collaboration agreement to develop, manufacture and commercialize flow cytometry-based companion diagnostics (CDx). This is intended to help select the best treatment for patients with cancer and other diseases.
Price Performance of DGX
Shares of DGX have risen 16.2% in the past year compared with the industry’s 10.4% growth.
Zacks Rank and Other Key Picks
DGX currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader medical space are Intuitive Surgical ISRG, TransMedics Group TMDX and Boston Scientific BSX. While Intuitive Surgical and TransMedics sport a Zacks Rank #1 (Strong Buy) each, Boston Scientific currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical’s shares have surged 58.9% in the past year. Estimates for the company’s earnings have remained constant at $6.67 per share for 2024 in the past 30 days.
ISRG’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 8.97%. In the last reported quarter, it posted an earnings surprise of 16.34%.
Estimates for TransMedics’ 2024 earnings per share (EPS) have moved up 48.1% to $1.20 in the past 30 days. Shares of the company have risen 178.7% in the past year compared with the industry’s 10.5% growth.
TMDX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 287.50%. In the last reported quarter, it delivered an earnings surprise of 66.67%.
Estimates for Boston Scientific’s 2024 EPS have increased 1.7% to $2.40 in the past 30 days. In the past year, shares of BSX have risen 47.8% compared with the industry’s 10.4% growth.
In the last reported quarter, BSX delivered an earnings surprise of 6.90%. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.18%.
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