Healthy Gains For A Test Lab

Clinical laboratory testing has become a booming niche business, so it's not surprising that there have been a lot of acquisitions in that segment of health care in recent years. As a result, not many clinical laboratories are publicly traded anymore. But some big investors are betting on one company that still is: Damon Group. Its stock has climbed to 5 1/4 from 3 1/2 in mid-August. Despite that rise, some pros say Damon is still a bargain.

Its network of 12 regional clinical labs, which perform more than 400,000 diagnostic tests a week for doctors and hospitals, have yet to be reflected in Damon's stock, say the pros. The company's labs are located in major cities, such as Atlanta, Chicago, Dallas, Los Angeles, New York, and San Francisco. Damon also operates some 40 smaller labs and 100 specimen-collection centers.

"Damon's clinical-lab business has been gaining market share and has rapidly improved the company's operating margins," says John Hindelong, a health care analyst at Donaldson Lufkin & Jenrette Securities. "The company's test labs are a value that is not yet apparent to investors." One takeover pro puts Damon's breakup value at $10 to $12 a share, based on the prices that other lab-testing operations have commanded in recent acquisitions. Part of the recent rise in Damon stock can be attributed to speculation that the company is informally talking to several European and American health care companies about a merger or sale of part of the company. Damon declined comment.

It wasn't that long ago--in May, 1989--that Damon was acquired by Nomad Partners, an investor group. Damon Group Chairman and CEO Robert Rosen, who also heads Nomad Partners, has sold Damon's nonlab businesses, which has helped improve profit margins and repay the $50 million bridge loan that was obtained to buy the company. Analysts see operating earnings jumping to $40 million in 1991 from an estimated $31 million for last year.