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Quest Diagnostics Plans a Buyout to Widen TB Testing Suite

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Quest Diagnostics (DGX - Free Report) recently announced an agreement to acquire the U.S. laboratory services business of Oxford Immunotec Global PLC (OXFD - Free Report) . Subject to customary regulatory approvals, the transaction is expected to be completed in the fourth quarter of 2018.

Post acquisition,Oxford Immunotec's T-SPOT.TB tuberculosis and the Accutix tick-borne disease tests will be added to Quest Diagnostics portfolio. Furthermore, Oxford Immunotec will sell T-SPOT.TB test kits and related accessories to Quest Diagnostics under a long-term supply agreement.

Quest Diagnostics also plans to collaborate with Oxford Immunotec for driving continued growth of T-SPOT.TB testing in the United States.

Notably, Quest Diagnostics will continue to offer QuantiFERON TB blood testing services.

Market Prospects

Per a Morbidity and Mortality Weekly Report (MMWR) published by Centers for Disease Control and Prevention, 9,287 new TB cases were diagnosed across the United States in 2016. Per Research and Markets data published on Business Wire, the TB market will see a CAGR of 4.3-4.8% between 2016 and 2022.

Moreover, per a Lab Tests Online article, around 13 million cases of latent TB may exist in the United States. The company’s latest acquisition will help it cash in on the opportunities in the TB market.

M&A Continues to Add Value

Quest Diagnostics is progressing well with regard to its two-point strategy to generate shareholder value -- through accelerating growth and driving operational excellence. The growth acceleration strategy consists of five elements. So far, the first element to grow through strategically aligned accretive acquisitions is well on track. 

Meanwhile, in a bid to expand in the field of fertility diagnostics, the company recently acquired ReproSource, a provider of specialty fertility diagnostic services. Following the purchase of ReproSource, Quest Diagnostics formed an alliance with Regional Medical Center Health System (RMC), a regional health care provider for a five-county service area in Northeast Alabama. The alliance with RMC was followed by Quest Diagnostics’ acquisition of PhenoPath, a national provider of specialized anatomic pathology and related services.

Per management, synergies gained from the acquisitions completed in 2017 continue to drive revenues and M&A pipeline. In the year, the company had announced seven acquisitions which should enable Quest Diagnostics to exceed its M&A objective of 1-2% top-line growth in 2018. The company had earlier projected about a 250-basis point growth from M&A in 2018.

Share Price Performance

Shares of Quest Diagnostics have underperformed its industry over the past year. The stock has gained 15.4% in comparison to the industry's 31.9% rise. We believe that the latest development will help the stock rebound.

Zacks Rank and Key Picks

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

Some better-ranked stocks in the broader medical space are Amedisys, Inc. (AMED - Free Report) and Masimo Corporation (MASI - Free Report) .

Amedisys’ long-term expected earnings growth rate is 19.4%. The stock sports a Zacks Rank #1 (Strong Buy) at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.

Masimo’s long-term expected earnings growth rate is 14.8%. The stock currently has a Zacks Rank #2 (Buy).

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