consolidation seems to be the hope of the industry. Reimbursment fears the drawbacks. Scale seems to be the key barrier to entry. New tests, specifically DNA screening for both future concerns and targeting drug regimen are the future. My original take on the industry was that as the baby boomers got older, regardless of reimbursment, your going to pay to know whats wrong. I feel even more strongly that designer drugs and strategies to fight disease will require even more preparation and knowledge. OK, so the need is there, the base should grow, new tests seem to follow the marketing curve of profitability.
Since LH and DGX have very high coorelations, I dont see how one does well and the other doesnt, but most reports I read question DGX management decisions. DGX With a 2.3% dividend, and likely raises in the future, with auto reinvesting the dollar cost averaging opportunities seem to good to pass up.
they are both trading near lows, most analysts have poor ratings, companies make lots of money and have pretty low P/E's, charts are ugly. Thats a pretty good entry point if you beleive there will be an upcycle. I dont buy the "consolidation" proposition. Buying other mature testing may up revenues, but wont help margins. If margins get too big, larger users will go in house. So testing either needs to be new or complicated. Both LH and DGX already can handle that space.
The only downside I can see over the long run is the value trap. With current rates, DGX dividend takes care of that.
Hence my dilemma and my question to Paul. Leaning toward bad management and dividend. |
