Back to top

Analyst Blog

Laboratory Corporation of America Holdings (LH - Analyst Report) has once again extended the tender offer for Orchid Cellmark until December 9, 2011. The company had earlier extended the tender offer to November 30.

In May 2011, the company received a request from the Federal Trade Commission (FTC) for some additional information related to the transaction. LabCorp is cooperating with the FTC on this issue. To date, about 88.2% of the outstanding shares of Orchid have been tendered.

LabCorp had decided in April 2011 to acquire Orchid Cellmark for $2.80 per share, coming to a total consideration of $85.4 million, all in cash. After taking into account Orchid Cellmark’s cash balance, LabCorp’s net payable comes to $65.6 million. 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 derives 60% of its revenues from core routine tests. It also provides specialty testing services in the areas of allergy, clinical trials, diagnostic genetics, identity, forensics, infectious disease, oncology and occupational testing, which accounts for the remaining 40%.

LabCorp, in a drive to diversify from the more mature core testing, has of late put more and more emphasis on specialized testing. Acquisitions have played an integral role in this respect, significant among which are Monogram Bioscience (August 2009) and Genzyme Genetics (December 2010). The company has set a target of garnering 45% of its revenues from the specialty business in the next 3-5 years.

During the most recent quarter, total revenue increased 10% year over year to reach $1,404.5 million, of which approximately 7% came from the acquisition of Genzyme Genetics. However, economic uncertainty has resulted in lackluster physician office visits, as reflected in the year-to-date declining trend in organic volume growth at LabCorp (3% in the first, 2% in the second and 1.2% in the third). Moreover, with no significant job growth in the economy or an increase in commercially insured covered lives, the company’s overall volume growth will continue to languish until the economy rebounds.

In this scenario, LabCorp’s competitor, Quest Diagnostics (DGX - Analyst Report), is also striving for a greater share of the high-margined, specialized testing business. In such a quest, the company has acquired neurological diagnostic test specialist Athena Diagnostics and Celera Corp.

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.

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.80 +7.04%
BANCO DO BR… BDORY 14.74 +5.66%
AIR INDUSTR… AIRI 9.99 +4.15%
EQT MIDSTRE… EQM 98.14 +3.38%
WEATHERFORD… WFT 23.64 +3.10%