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Quest Diagnostics to Buy Select Assets of Memorial Hermann

Zacks Equity Research

Quest Diagnostics DGX recently signed a multi-pronged, long-term definitive deal to acquire select assets of Memorial Hermann Health System, one of the largest not-for-profit health systems in Southeast Texas. However, the financial terms of the deal have been kept under wraps.

According to Quest Diagnostics, this is a step forward in its commitment toward offering high-quality, cost-efficient diagnostic services in Texas, especially in the Houston metropolitan area.

Per the terms of the deal, the assets that will be acquired comprise all operations of Memorial Hermann Diagnostic Laboratories (“MHDL”), the outreach laboratory segment of Memorial Hermann. Nearly 30 MHDL patient service centers and 60 in-office laboratory service sites will be acquired by the company. This implies that these services will shift to the Quest Diagnostics full-service laboratory in Houston.

We note that Memorial Hermann Health comprises a network of 17 hospitals and more than 300 care delivery sites in the Greater Houston region.

More About the Deal

After completion of the deal, Quest Diagnostics will be offering professional laboratory management services for all of Memorial Hermann's 21 hospital laboratories, which specialize in offering onsite rapid response testing. Apart from this, Quest Diagnostics will become the sole preferred provider of laboratory services for the Memorial Hermann Health Plan.

 

Physicians and patients will be benefiting from access to Quest Diagnostics’ market-leading test menu and broad health plan coverage as well as an expanded community of nearly 80 patient services centers throughout Houston.

Subject to customary regulatory approvals, the transaction is expected to be completed within the second quarter of 2020.

Recent Development

In December 2019, Quest Diagnostics acquired select assets of the clinical laboratory services business segment of Boston Clinical Laboratories (“BCL”), a Waltham-based regional provider of laboratory services. BCL’s patients and providers now have access to Quest Diagnostics’ expanded range of diagnostic services, a broader network of patient service centers as well as an array of unique tools, such as the company’s Quanum portfolio of healthcare information technologies and data analytics.

Price Performance

In the past year, the company’s shares have outperformed the industry. The stock has rallied 28% against the industry’s 15% decline.

Zacks Rank and Stocks Worth a Look

Quest Diagnostics currently has a Zacks Rank #4 (Sell).

A few better-ranked stocks from the broader medical space are West Pharmaceutical Services WST, Hill-Rom Holdings, Inc HRC and Intuitive Surgical ISRG, each currently carrying a Zacks Rank #2 (Buy).

West Pharmaceutical Services has a projected long-term earnings growth rate of 14%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hill-Rom’s long-term earnings growth rate is estimated at 11.7%.

Intuitive Surgical has a long-term earnings growth rate of 11.8%.

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