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TheStreet Open House

Sector Snap: Diagnostic Lab Operators Downgraded

NEW YORK (AP) â¿¿ A Raymond James analyst downgraded shares of two diagnostic laboratory operators to "Underperform" Wednesday, saying he believes their profit growth will be slow.

Analyst Alexander Draper downgraded shares of Quest Diagnostics Inc. and Laboratory Corp. of America Holdings. He said the stocks will experience pressure from concerns about cuts to government reimbursement rates and from investor concerns about weak job data. Both companies perform drug testing for employers, and high unemployment hurts that business.

He added that the companies are struggling to create growth in their businesses and are increasingly turning to acquisitions, which creates more risk.

"We believe that persistent lackluster volume growth and existing and upcoming pricing headwinds in both Medicare and commercial will limit earnings growth over the intermediate term," he wrote.

Draper previously rated LabCorp stock at "Outperform," two notches above the "Underperform" rating. He also removed his price target of $95 per share. He had a "Market Perform" rating on Quest shares.

In afternoon trading, LabCorp shares rose 68 cents to $85.24 and Quest stock fell 37 cents to $54.30 while the broader markets rallied.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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