Quest Diagnostics to Expand in Canada With LifeLabs Buyout

Quest Diagnostics DGX has entered into a definitive agreement with OMERS to acquire LifeLabs, a prominent Canadian provider of community laboratory tests. The deal, valued at approximately CAN $1.35 billion ($985 million), underscores DGX's strategy to expand its footprint in Canada's healthcare diagnostics market.

By integrating LifeLabs into its operations, Quest Diagnostics aims to enhance the accessibility and quality of diagnostic services for Canadians.

Investors should note that OMERS, a jointly sponsored, defined benefit pension plan, purchased LifeLabs back in 2007.

Terms and Strategic Vision

Under the latest agreement, Quest Diagnostics will acquire 100% of LifeLabs' equity, funding the transaction through cash and debt. The acquisition is expected to generate annual revenues of approximately CAN $970 million ($710 million) and will be slightly dilutive to Quest Diagnostics' GAAP EPS due to amortization. However, it will be accretive to adjusted EPS within the first year after closing.

LifeLabs will retain its brand, headquarters and management, ensuring continuity in its operations while benefiting from Quest's expertise and innovations.

Synergy Benefits

The acquisition promises several synergy benefits. Quest Diagnostics' extensive experience and resources will bolster LifeLabs' service offerings. This includes enhanced online appointment scheduling and quicker patient service center processing. Additionally, Quest Diagnostics plans to accelerate LifeLabs' data security measures, ensuring that Canadian patients' health data remains secure and within the country.

Quest Diagnostics' recent advancements in specialized testing for Alzheimer's disease, women's health, oncology and cardiometabolic health will also be integrated into LifeLabs' services. This will provide Canadians with access to cutting-edge diagnostics, enhancing overall healthcare delivery.

Strengthening Collaboration

The five-year long-established relationship between Quest Diagnostics and LifeLabs, through the Global Diagnostic Network and reference testing agreements, sets a strong foundation for this acquisition. This existing collaboration has already facilitated the sharing of expertise and broadened testing access, which will be further amplified post-acquisition.

By leveraging Quest's innovations and LifeLabs' established presence, the partnership aims to meet the growing healthcare needs of Canadians, driving improved health outcomes and service efficiency.

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Industry Prospects

According to an Insights 10 report, the clinical diagnostics market in Canada is poised for substantial growth. It is projected to rise from $3.9 billion in 2022 to $4.9 billion by 2030 at a CAGR of 3.1%. This growth is likely to be driven by increased awareness of early disease detection and treatment benefits, alongside significant government investments in diagnostic services. Key players such as LifeLabs, SickKids and Dynacare dominate the market, which is segmented by molecular diagnostics and end users. Government initiatives, like Bill C-17, further bolster the market's expansion by providing additional funding for healthcare improvements.

Share Price Performance

Year to date, shares of DGX have risen 2.2% compared with the industry's 5.7% growth.

Zacks Rank and Key Picks

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

Some better-ranked stocks in the broader medical space are Hims & Hers Health, Inc. HIMS, The Joint Corp. JYNT and Medpace Holdings MEDP. While Hims & Hers and The Joint currently sport a Zacks Rank #1 (Strong Buy) each, Medpace Holdings carries a Zacks Rank #2 (Buy) at present.

The Hims & Hers Heath stock has surged 130.5% in the past year. Estimates for the company's 2024 earnings have moved north by 5.6% to 19 cents per share in the past 30 days.

HIMS' earnings beat estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 79.2%. In the last reported quarter, it posted an earnings surprise of a staggering 150%.

Estimates for The Joint's 2024 earnings per share have remained constant at 21 cents in the past 30 days. Shares of JYNT have surged 38.8% year to date against the industry's 5.3% decline.

In the last reported quarter, JYNT delivered an earnings surprise of 300%. It has a trailing four-quarter average earnings surprise of 18.75%.

Estimates for Medpace's 2024 EPS have remained unchanged at $11.29 in the past 30 days. Shares of the company have surged 70.1% in the past year compared with the industry's 4.6% growth.

MEDP's earnings surpassed estimates in each of the trailing four quarters, the average surprise being 12.8%. In the last reported quarter, it delivered an earnings surprise of 30.6%.

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