SECAUCUS, N.J. and TORONTO - Quest Diagnostics (NYSE:DGX), a prominent provider of diagnostic information services, has entered into a definitive agreement to purchase LifeLabs from OMERS for about CAN $1.35 billion (USD $985 million), including net debt. The transaction is expected to be finalized by the end of the year, pending customary closing conditions and Canadian regulatory approvals.
Quest Diagnostics aims to leverage its expertise to accelerate LifeLabs' growth and enhance healthcare services for Canadians. LifeLabs will maintain its brand, headquarters, and management in Canada post-acquisition. Quest plans to introduce improvements such as better online appointment scheduling and faster processing at patient service centers, as well as bolstering data security while keeping Canadian health data within the country.
Jim Davis, Chairman, CEO, and President of Quest Diagnostics, expressed the company's commitment to improving healthcare and supporting LifeLabs' expansion. Charles Brown, President and CEO of LifeLabs, acknowledged Quest as the right partner to build on LifeLabs' strengths and enhance service accessibility and quality for Canadians.
LifeLabs is Canada's leading provider of laboratory diagnostic information and has been recognized for its contributions to Canadian healthcare, including operating the country's first commercial genetics lab and its largest online patient portal.
Quest plans to fund the acquisition with cash on hand and debt. The company anticipates the deal to generate roughly CAN $970 million (USD $710 million) in annual revenues and to be slightly dilutive to GAAP earnings per share (EPS) due to amortization and other items. However, it is expected to be accretive to adjusted EPS in the first 12 months post-closing.
The companies have a history of collaboration, with LifeLabs being a part of the Quest-led Global Diagnostic Network and a test-reference relationship where Quest provides access to select advanced diagnostic tests.
The information provided in this article is based on a press release statement from Quest Diagnostics.
In other recent news, Quest Diagnostics has entered into a definitive agreement to acquire select laboratory assets from Allina Health, a move expected to increase the accessibility of advanced laboratory services in Minnesota and western Wisconsin.
The deal is expected to close in the third quarter of 2024, pending regulatory reviews. Additionally, Quest Diagnostics has successfully acquired PathAI Diagnostics' laboratory assets, now rebranded as AmeriPath, to enhance its use of artificial intelligence in disease diagnosis.
Citi has maintained a neutral rating on Quest Diagnostics, forecasting potential margin improvements by 2024. This outlook is backed by high utilization rates and a possible delay in the Protecting Access to Medicare Act (PAMA), which is seen as a significant factor affecting long-term margins.
Quest Diagnostics has also announced a quarterly cash dividend of $0.75 per share, further demonstrating its commitment to shareholder value. In terms of leadership changes, Robert B. Carter, the current Executive Vice President and Chief Information Officer at FedEx Corporation (NYSE:FDX), has joined Quest Diagnostics' Board of Directors, and Murali Balakumar has been appointed as Senior Vice President and Chief Information and Digital Officer.
Finally, a study conducted by Haystack Oncology, a subsidiary of Quest Diagnostics, suggests that circulating tumor DNA (ctDNA) testing for minimal residual disease could potentially reduce health plan costs by up to 21% for stage II colorectal cancer patients.
InvestingPro Insights
As Quest Diagnostics (NYSE:DGX) makes a strategic move to acquire LifeLabs, enhancing its footprint in the Canadian healthcare sector, investors may find it valuable to consider some key financial metrics and insights from InvestingPro. With a market capitalization of $15.18 billion and a solid track record of raising its dividend for 12 consecutive years, Quest Diagnostics demonstrates a commitment to shareholder returns. This is further underlined by the fact that the company has maintained dividend payments for 21 consecutive years, showcasing its financial stability and reliability as an income-generating stock.
InvestingPro Tips highlight that management has been actively engaged in share buybacks, a sign of confidence in the company's value proposition. Additionally, analysts predict that Quest Diagnostics will be profitable this year, reaffirming the company's robust financial health. The company's P/E ratio stands at 18.18, and while it trades at a high P/E ratio relative to near-term earnings growth, the stock generally trades with low price volatility, which might appeal to risk-averse investors.
In terms of performance, Quest Diagnostics has seen a slight revenue decline in the last twelve months as of Q1 2024, with a -3.29% change, but has managed to maintain a healthy gross profit margin of 33.08%. The company's diligent financial management is evidenced by an operating income margin of 14.29% and a return on assets of 6.72%. Moreover, the dividend yield as of the latest data stands at 2.2%, accompanied by a dividend growth of 5.63%.
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