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Quest Closes HemoCue Divestment

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As per its plan to sell the HemoCue diagnostics products business, Quest Diagnostics (DGX - Free Report) , recently completed the divesture of the same. The company announced that Radiometer Medical ApS purchased this business for $300 million plus customary adjustments for cash balances. Last December, Quest Diagnostics came up with the plan to sell its HemoCue diagnostic products business in order to align its assets in the core diagnostics information service business.

HemoCue develops point-of-care testing systems like hemoglobin tests, glucose test and others worldwide. The company believes that, in addition to its earlier divestment of OralDNA Labs salivary-diagnostics business to Access Genetics, the latest divesture of HemoCue will allow it to refocus its resources toward core diagnostic information services, drive operational excellence and restore growth.

Quest Diagnostics has been focusing on areas with high potential such as gene-based esoteric testing for cancer, cardiovascular disease, infectious disease and neurological disorders. The company has experienced increasing demand for gene-based and esoteric tests compared to routine tests on the back of increased esoteric mix contributed by Athena and Celera.

Earlier in Dec 2012, as a part of this strategy, the company shredded off its OralDNA Labs salivary-diagnostics business in order to refocus its resources to core diagnostic information services. In the recent past, Quest developed a number of gene-based and esoteric tests, made strategic acquisitions and entered into partnerships to further strengthen its foothold in this segment.

Although we remain concerned with Quest Diagnostics’ overall sales disruption in the recent past, we are optimistic regarding the company’s strategy to refocus on Diagnostic Information Services along with the organizational structure developed by the company’s new CEO, Steve Rusckowski. We also expect this to run successfully adding synergies to its ongoing $500 million restructuring initiative, associated with its Invigorate program.

We remain concerned about Quest Diagnostics as it is continuously witnessing challenges in testing volume. Concerns also remain about a conservative 2013 revenue outlook, indicating that the industry trend will not improve in the near future. Moreover, reimbursement pressure from government and other payers continue. Concerns linger regarding the reimbursement cut, in effect from Jan 1, 2013.  The competitive landscape is also tough with the presence of Laboratory Corporation of America Holdings (LH - Free Report) . The stock retains a Zacks Rank #3 (Strong Sell).

Other Stocks to Consider

Other medical device stocks worth a look are Medical Action Industries Inc. and Cyberonics Inc. . Both these stocks carry a Zacks Rank #1 (Strong Buy).

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