Deutsche Bank Upgrades Quest Diagnostics (DGX) to Buy; Lab Corp (LH) Cut to Hold

Deutsche Bank upgraded Quest Diagnostics (NYSE: DGX) from Hold to Buy with a price target of $75.00 (from $64.00). Lab Corp. (NYSE: LH) was downgraded to Hold from Buy with a price target of $115 (from $120). Analyst Darren Lehrich thinks Quest is the more compelling idea right now.

"At a time when we believe both of the biggest independent labs are at the cusp of returning to more predictably positive operating earnings growth in their core lab business, we are faced with the most basic question: which is the better one to own? For years, we've had a more favorable bias towards LH due to its better organic growth profile. Yet, the Covance, Inc. (CVD: $100.44; Hold) deal now complicates the question at hand because LH now becomes less of a pure way to play in the space with CVD representing ~25% of the pro forma enterprise," said Lehrich.

"Although we do believe LH is buying a top-tier pharma services co. in CVD, based on our significant interactions with investors of all stripes, we conclude the LH-CVD deal lowers LH's appeal to most traditional health care services investors. And while CVD may very well enhance the growth rate of the firm and prove to be quite accretive ("mid-single digit” % in 2015), we believe the revenue synergies (i.e. industrial logic) from this deal are indeed hard to envision and not yet being well laid-out by LH. Our sense is LH may stall in a trading range over a near-term basis until investors better understand the merits and growth opportunities associated with the CVD deal," he added.

For an analyst ratings summary and ratings history on Quest Diagnostics click here. For more ratings news on Quest Diagnostics click here.

Shares of Quest Diagnostics closed at $62.89 yesterday.

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