Quest Diagnostics Buys 2 Outreach Labs, Widens Customer Base

Quest Diagnostics (NYSE:DGX) recently announced the completion of the buyout of outreach laboratory service operations of Hartford HealthCare hospitals — The William W. Backus Hospital and The Hospital of Central Connecticut. However, the financial terms of the transaction have been kept under wraps.

Now on, the laboratory operations of the hospitals will be shifted to Quest Diagnostics’ advanced full-service clinical laboratory in Marlborough, MA, along with rapid response laboratories in Wallingford, Torrington, Stratford, Hartford and Norwich based in Connecticut.

The buyouts, which have been approved by the state of Connecticut's Office of Health Care Access, will give care providers direct access to Quest Diagnostics’ broader menu of services along with a wider network of patient service centers.

Per the company, this deal will strengthen its business relationship with Hartford HealthCare. In this context, Quest Diagnostics had acquired the outreach laboratory service business of Clinical Laboratory Partners, a wholly-owned subsidiary of Hartford HealthCare, in 2016.

We are also highly 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 this regard, we are looking forward to the company’s deal with Walmart (NYSE:WMT). Particularly, the company is positive about its recent agreement with PeaceHealth in the Pacific Northwest, which is expected to bolster growth in 2017. Also, management is upbeat about the latest acquisitions of Med Fusion and ClearPoint to advance in the diagnostics space. We are also encouraged by the company’s plan to acquire the outreach laboratory services business of Cape Cod Healthcare.

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 11.8%, in contrast to the broader industry’s decline of 2.1%.

Zacks Rank & Key Picks

Quest Diagnostics currently carries a Zacks Rank #4 (Sell). A few better-ranked stocks in the medical sector are Orthofix International N.V. (OFIX), Luminex Corporation (NASDAQ:LMNX) and IDEXX Laboratories, Inc. (NASDAQ:IDXX) . Orthofix International and Luminex Corporation sport a Zacks Rank #1 (Strong Buy), while IDEXX Laboratories carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Orthofix International has a long-term expected earnings growth rate of 11.8%. The stock has rallied roughly 4.6% over the last three months.

Luminex Corporation has a long-term expected earnings growth rate of 16.3%. The stock gained 15.3% over the last six months.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock gained 39.2% over the last year.

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