Tags: Quest | cash | investors | DGX

Quest Diagnostics to Direct Cash to Investors

By    |   Monday, 05 Dec 2011 02:01 PM

With recent quarters focused on improving operating performance and integrating newly acquired businesses, medical laboratory Quest Diagnostics (DGX) now plans to direct its cash flow over the next few years to its investors rather than acquisitions.

Quest and competitor Laboratory Corp. of America (LH) have less than 25 percent combined market share in America’s medical diagnostics industry, suggesting that there’s a lot of room for it to grow in coming years. Quest currently performs testing for 150 million patients each year and serves more than half of America's physicians and hospitals.

But that kind of market dominance can be dicey as a company looks to strengthen and grow its market share. In May, Quest Diagnostics paid $241 million to settle a case in California that alleged it systematically overcharged the state's Medicaid program for more than 15 years and gave illegal kickbacks in the form of discounted or free testing to doctors, hospitals and clinics.

Now the company could be in trouble again, but this time on a national scale. Quest and Laboratory Corp., as well as health insurers Cigna, Aetna and UnitedHealth Group, are under investigation by two high-profile Senators known for sniffing out illegal kickbacks in health care. Though the companies are cooperating and there have been no legal charges filed yet, violations of federal anti-kickback laws are felony offenses.

New tests

On the upside, Quest Diagnostics has just launched its Simplexa Flu A/B & RSV Direct test for flu and respiratory syncytial virus, which is expected to speed up diagnostic times in order to allow doctors to better prescribe treatments to patients. The new test is part of the Simplexa line of molecular test products operating on the 3M Integrated Cycler, a compact, portable testing platform, as part of an exclusive global collaboration with 3M (MMM).

Recently the company’s President, CEO and Chairman of the Board Surya N. Mohapatra announced he would be leaving the company after 12 years but will stay on board for six months to ensure a smooth transition with whomever the board chooses to be his replacement. He sold 50,000 shares at an average price of $57.41 a share three days after the announcement.

Jefferies recently reiterated its hold rating on DGX with a price target of $61. Third quarter earnings in late October showed quarterly revenues up 2.2 percent on the year while year-to-date revenues were up 1.6 percent.

DGX next reports Jan. 25.

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With recent quarters focused on improving operating performance and integrating newly acquired businesses, medical laboratory Quest Diagnostics (DGX) now plans to direct its cash flow over the next few years to its investors rather than acquisitions. Quest and competitor...
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2011-01-05
Monday, 05 Dec 2011 02:01 PM
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