Global life sciences company Laboratory Corporation of America Holdings (NYSE: LH), popularly known as Labcorp, entered into a definitive agreement to acquire cancer genomics solutions provider, Personal Genome Diagnostics Inc. for $575 million. The deal is likely to close in the first half of 2022.
Following the news, shares of the company declined marginally to close at $301.91 during yesterday’s extended trading session.
Terms of the Deal
Under the terms of the deal, Labcorp will initially pay $450 million in cash and an additional $125 million, subject to the achievement of certain milestones.
Strategic Impact
With this acquisition, Labcorp will gain access to Personal Genome’s advanced cancer genomics technology and subsequently gain a strong foothold in the space. Along with its existing liquid biopsy capabilities, Labcorp’s oncology portfolio will also receive a boost resulting in enhanced offerings for its patients.
Financial Implications of the Deal
Personal Genome is expected to register revenues of about $22 million in 2021 and about $40 million in 2022. Taking this into account, Labcorp expects the acquisition to be slightly dilutive to Labcorp’s adjusted earnings per share over the next couple of years. However, the acquisition will provide returns in excess of its cost of capital by year five.
Management Commentary
CEO of Labcorp, Adam Schechter, said “PGDx’s comprehensive portfolio of next-generation sequencing products will meaningfully add to our breadth of capabilities, in line with our strategic priority to lead in oncology. PGDx’s technology is well positioned in an important segment with strong growth prospects.”
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Analyst Ratings
Recently, Mizuho Securities analyst Ann Hynes reiterated a Buy rating on the stock. The analyst, however, raised the price target from $332 to $354, which implies upside potential of 17.3% from current levels.
Wall Street Analysts Ratings is a Strong Buy based on 7 Buys and 1 Hold. The average Labcorp stock price prediction price target of $353.13 implies upside potential of 16.97% from current levels. Shares have gained 48.1% over the past year.
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