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A Closer Look at Quest Diagnostics, Lab Corp and Hologic

In contrast to Quest, Lab Corp recently reported a slight beat on third-quarter earnings. Over the next year, it will likely see a bump in revenue from an increase in applicable patient populations. But in the short term, it has been suffering slightly from lower health care utilization and Medicare payment reductions.

Despite the slight beat, Lab Corp reduced its revenue estimate for the remainder of 2013.

Most analysts seem to have a preference for Lab Corp over Quest, but it should be noted that the stock is slightly more expensive at 17 times earnings and the company doesn't pay a dividend. However, the company has already bought back nearly $300 million in stock over the past quarter and has over $300 million more authorized in its buyback programs.

Of these three stocks, Hologic is clearly the growth pick. Hologic makes and develops diagnostic tests, rather than provide test services. Much of the company's product line is dominated by women's health diagnostics.

Profitability has been mixed, but revenue growth is strong. The company also continues to hold nearly $1 billion in cash and has generated more than $400 million in cash so far in 2013.

Despite its $6 billion market cap, this company seems to be somewhat below the radar for most investors in the diagnostics secor. The company has reported steady revenue growth and will generate over $2 billion in revenue this year, but the share price is up by only around 13% for the year to date.

The biggest risk to all of these stocks will be any potential changes in the payment landscape. On its recent earnings call, Lab Corp CEO David King noted the company is continuing to experience challenges with recently implemented molecular pathology codes among various payors including Medicare, Medicaid, Tricare and commercial carriers.

It specifically cited this as hurting third-quarter earnings per share and incorporated these delays into its lowered outlook.

But the upside for all three will likely come from the increased rollout of new genetic-based tests such as Quest's BRCA test and Lab Corp's KRAS and EGFR tests.

At the time of publication, the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Rick Pearson is a private investor focusing on U.S.-listed China small-cap stocks. Until 2005, Pearson was a director at Deutsche Bank, spending nine years in equity capital markets in New York, Hong Kong and London. Previously, he spent time working in venture capital in Beijing. Mr. Pearson graduated magna cum laude with a degree in finance from the University of Southern California and studied Mandarin for six years. He has frequently lived, worked and traveled in China since 1992.
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