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Quest Diagnostics Banks on Buyouts to Expand in Diagnostic

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Quest Diagnostics (DGX - Free Report) recently announced completion of the previously announced buyout of Cleveland HeartLab. This is in line with the company’s plan to establish a national center of excellence in diagnostic information services at Cleveland HeartLab's 25,000-square feet specialized laboratory in Cleveland, OH.

Per the company, the national center of excellence will be focusing on heart disease diagnostics. Moreover, the combined firms will integrate Quest Diagnostics' Cardio IQ lipid particle analysis and genetic and metabolic testing expertise with Cleveland HeartLab's strength in personalized evaluation of heart disease risk based on inflammation and other markers.

Focusing on heart disease diagnostics, Quest Diagnostics announced itself as the first national diagnostic services provider that enhances accuracy of heart disease screening along with customizing treatment with lipid-lowering medications like PCSK9 inhibitors and statins by utilizing LDL-cholesterol calculation.

We believe that unhealthy lifestyle and a rise in ageing population will continue to result in high incidence of cardiovascular diseases. This is further strengthened by data provided by GBI Research.Per the report, the global cardiovascular diseases market will see a CAGR of 4.1% by 2019. Within this space, the U.S. market is expected to witness the highest momentum at a CAGR of 4.7%. Thus, in view of the current market potential, we believe that the company’s efforts will help boost the top line.

We are also optimistic about the company’s focus on its two-point strategy. According to Quest Diagnostics, its planned divestiture of the Focus Diagnostics products business is part of its strategy to refocus on diagnostic information services. 

Additionally, several new collaborations with hospitals and integrated delivery networks have turned out to be major growth drivers in the past. In this regard, we are encouraged by the company’s completion of thebuyout of outreach laboratory service operations of Hartford HealthCare hospitals — The William W. Backus Hospital and The Hospital of Central Connecticut. The company has also completed the acquisition the acquisition of Med Fusion and Clear Point in Texas forming a national precision oncology center of expertise. Moreover, the company’s agreement to purchase Shiel Medical Laboratory and plans to acquire the outreach laboratory services business of Cape Cod Healthcare buoy optimism.

We are also upbeat about Quest Diagnostics and Clinical Genomics, a major player in the field of colorectal cancer detection, jointly announcing the FDA clearance of the latter’s InSure ONE. Notably, with the FDA approval, Quest Diagnostics will make InSure ONE available to its broad base of physicians, organized provider groups and Accountable Care Organizations (ACOs) in the United States. InSure ONE is expected to be commercially available in early 2018. This development is in line with Quest Diagnostics’ consistent efforts to grow in cancer diagnostics.

Quest Diagnostics’ relationship with PeaceHealth is well on track. This partnership entails the acquisition of the outreach laboratory as well as a professional laboratory service agreement to manage laboratories at 11 PeaceHealth Medical Centers in Washington State, Oregon and Alaska. This relationship is fully operational and is contributing to Quest Diagnostics’ top line.

Per the company, these tuck-in acquisitions fit well within the ambit of M&A guidelines. Quest Diagnostics’ takeover plans are consistent with its goal of contributing 1-2% to revenues annually through accretive acquisitions. Thus, we believe this latest buyout will widen the customer base of this leading diagnostic services information provider.

Share Price Performance

Quest Diagnostics has been gaining investor confidence on consistently positive results. Over the last year, the company’s share price has outperformed the broader industry. The stock has gained 13% in contrast to the broader industry’s decline of 8.8%.

 

 

Zacks Rank and Key Picks

Quest Diagnostics carries a Zacks Rank #3 (Hold).

A few better-ranked medical stocks are PetMed Express, Inc. (PETS - Free Report) , Align Technology, Inc. (ALGN - Free Report) and Myriad Genetics, Inc. (MYGN - Free Report) . Notably, PetMed, Align Technology and Myriad Genetics sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed has a long-term expected earnings growth rate of 10%. The stock has rallied roughly 81.2% over a year.

Align Technology has a long-term expected earnings growth rate of 28.9%. The stock has gained 134.6% in a year.

Myriad Genetics has a long-term expected earnings growth rate of 15%. The stock has gained 93.7% in a year.

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