Quest Diagnostics Incorporated (DGX Quick QuoteDGX - Free Report) has been gaining from strong year-over-year growth in base business during the quarter, signifying industry-wide recovery. The company has raised its 2022 view, which buoys optimism. However, market headwinds and stiff competition remain concerns.

In the past year, shares of this Zacks Rank #3 (Hold) company have lost 2.9% compared with the 44.9% decline of the industry and 0.4% decline of the S&P 500.

The largest provider of commercial laboratory services in North America has a market cap of $15.54 billion. The company surpassed estimates in the trailing three quarters and missed the same in one, the average surprise being 13.66%.

Let us delve deeper.

Impressive Q1 Results: Quest Diagnostics posted better-than-expectedfirst-quarter earnings. The company noted that its base business showcased strong year-over-year growth during the quarter. Quest Diagnostics noted that it continues to make progress in the base business, executing its two-point strategy to accelerate growth and drive operational excellence. Quest Diagnostics’ health plan revenues without COVID-19 grew faster than its overall base business in the quarter.

Base Volume Improves: Quest Diagnostics’ base testing volumes or base business refers to testing volumes, excluding COVID-19 testing. The company’s legacy base business grew more than 6.3% in the first quarter of 2022. The company noted that it continued to make inroads with its health plans in the first quarter, gaining share and increasing revenues faster than the market.

Further, the company also has relationships with payers through value-based contracting. Currently, it has about 30% of its health plan revenues tied to value-based elements, including patient health outcomes, quality or shared savings. Quest Diagnostics believes it could grow this to about 50% over the next few years.

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Raised Guidance: The company raised its full-year 2022 guidance.
Full-year net revenues are currently estimated in the range of $9.20-$9.50 billion (increasing the low end of the earlier projection of $9.00-$9.50). The Zacks Consensus Estimate for the same is pegged at $9.31 billion.

Adjusted earnings per share are now expected in the range of $9.00-$9.50 (the earlier guided range was $8.65-$9.35). The Zacks Consensus Estimate for the metric is pegged at $9.01.

Downsides

Competitive Landscape: Quest Diagnostics faces intense competition from LabCorp, other commercial laboratories and hospitals. Hospitals control an estimated 60% of the diagnostic test market compared to Quest Diagnostic’s 15% share. While pricing is an important factor in choosing a testing lab, hospital-affiliated physicians expect a high level of service, including the accurate and rapid turnaround of testing results. As a result, Quest Diagnostics and other commercial labs compete with hospital-affiliated labs primarily based on the quality of service.

Current Market Headwinds Weigh Heavy: The current market environment remains challenging for Quest Diagnostics due to a persistent decline in healthcare utilization rate, softer volume, commercial pricing pressure and reimbursement headwind.

Estimate Trends

Quest Diagnostics is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 6.2% north to $9.28.

The Zacks Consensus Estimate for 2022 revenues is pegged at $9.25 billion, suggesting a 14.3% decline from the year-ago reported number.

Key Picks

A few better-ranked stocks from the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN Quick QuoteAMN - Free Report) , STERIS plc (STE Quick QuoteSTE - Free Report) and UnitedHealth Group Incorporated (UNH Quick QuoteUNH - Free Report) .

AMN Healthcare has an estimated long-term growth rate of 16.2%. AMN Healthcare’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 20%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has gained 37.3% against the industry’s 57.6% fall over the past year.

STERIS, carrying a Zacks Rank #2 (Buy), has an estimated long-term growth rate of 11.3%. STERIS’ earnings surpassed estimates in three of the trailing four quarters, the average surprise being 6.34%.

STERIS has gained 69.2% compared with the industry’s 7.2% growth over the past year.

UnitedHealth, having a Zacks Rank #2, reported first-quarter 2022 adjusted EPS of $5.49, which beat the Zacks Consensus Estimate by 1.7%. Revenues of $80.1 billion outpaced the consensus mark by 14.2%.

UnitedHealth has an estimated long-term growth rate of 14.8%. UNH’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%.