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Quest Diagnostics (DGX) Q4 Earnings: What Lies in Store?
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Quest Diagnostics Inc. (DGX - Free Report) is scheduled to report fourth-quarter and full-year 2016 earnings results before the opening bell on Jan 26, 2017.
Last quarter, the company surpassed the Zacks Consensus Estimate for earnings by 2 cents, delivering a positive earnings surprise of 1.48%. It is worth noting that Quest Diagnostics has outperformed the Zacks Consensus Estimate in each of the preceding four quarters with an average positive earnings surprise of 0.98%. Let’s see how things are shaping up prior to this announcement.
Factors at Play
With the last reported results, Quest Diagnostics saw the eighth consecutive quarter of organic revenue growth. Revenue per requisition was flat year over year in the quarter after four consecutive quarters of growth. We note that this was primarily due to lower revenue per requisition coming from the company’s Professional Lab Services (PLS) engagement, WJ Barnabas Health and HealthONE System of HCA Holdings, Inc. (HCA - Free Report) .
However, we expect this number to get a boost in the fourth quarter with HCA Healthcare coming online and ramping up through the end of the year. The company in fact expects PLS to have grown at a faster rate than the balance of the business in the fourth quarter of 2016. Subsequently, we remain optimistic about the company’s organic growth performance in the fourth quarter.
Quest Diagnostics Incorporated Price and EPS Surprise
We believe the upside will be backed by the successful execution of the company’s strategy to grow its esoteric testing business and drive profitable growth.
In the recent past, Quest Diagnostics has witnessed significant growth through infectious disease testing, prescription drug monitoring and industry-leading wellness business. We expect these growth drivers to be active through the fourth quarter as well, benefiting the same metrics as in the preceding quarter.
Within prescription drug monitoring, the company currently has two new Zika tests that are awaiting FDA clearance. Earlier, Quest Diagnostics announced the availability of three new Quest Vantage cancer tests, designed to provide clinical actionable insight into an individual's risk of developing hereditary forms of cancer. Besides, the company also piloted a program for noninvasive prenatal screening to serve women of average risk in select regions. These new offerings are expected to strengthen the company’s position in this growing marketplace.
We are also looking forward to the company's latest alliance with Ancestry. Quest Diagnostics will become Ancestry's first CLIA approved lab partner to provide DNA testing, enabling Ancestry DNA subscribers to build their family based on the origins.
Also IBM and Quest Diagnostics’ combined launch of IBM Watson Genomics is also expected to have a positive impact on results in the to-be reported quarter. This service should help advance precision medicine by combining cognitive computing with genomic tumor sequencing. It should help oncologists match patients with cancer therapies and clinical trials based on the tumor's unique DNA.
We believe all these recent developments will significantly contribute to the company’s top line in the fourth quarter. In addition, several new relationships with hospitals and integrated delivery networks were the other growth drivers.
In this regard, we note that Quest Diagnostics outperformed the Zacks categorized Medical - Outpatient and Home Healthcare industry with respect to price movement. With a series of catalysts to boost growth, we expect the trend to continue in the coming days as well.
On the flip side, we note that over the last two years, Quest Diagnostics has faced multiple reimbursement issues that affected its revenues. The company is highly disappointed with the recent CMS (Centers for Medicare & Medicaid Services) proposal related to Protecting Access to Medicare Act (PAMA). While reimbursement pressure will continue to remain an overhang on results in the to-be reported quarter, the company expects to more than offset that pressure through test and business mix.
Also, it still remains a big question whether the volume improvement in recent times is sustainable. We should take into consideration that price headwinds persisted in the quarter, down 50 basis points compared to the year-ago quarter.
The company currently expects full-year revenues to be $7.51 billion compared to the earlier range of $7.47–$7.54 billion. This reflects a 0.5% increase over 2015 reported revenues (2.5% growth over 2015 on an equivalent basis). The current Zacks Consensus Estimate for revenues is pegged at $7.52 billion, just above the guidance range. In addition, the company’s 2016 adjusted EPS expectation range has been tightened to the range of $5.07–$5.12 from the earlier range of $5.02–$5.17.
Earnings Whispers
Our proven model does not conclusively show that Quest Diagnostics is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Quest Diagnostics has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.27. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Quest Diagnostics has a Zacks Rank #2, which increases the predictive power of ESP. However, an ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are two companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Blueprint Medicines Corporation (BPMC - Free Report) has an Earnings ESP of +6.85% and a Zacks Rank #2.
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Quest Diagnostics (DGX) Q4 Earnings: What Lies in Store?
Quest Diagnostics Inc. (DGX - Free Report) is scheduled to report fourth-quarter and full-year 2016 earnings results before the opening bell on Jan 26, 2017.
Last quarter, the company surpassed the Zacks Consensus Estimate for earnings by 2 cents, delivering a positive earnings surprise of 1.48%. It is worth noting that Quest Diagnostics has outperformed the Zacks Consensus Estimate in each of the preceding four quarters with an average positive earnings surprise of 0.98%. Let’s see how things are shaping up prior to this announcement.
Factors at Play
With the last reported results, Quest Diagnostics saw the eighth consecutive quarter of organic revenue growth. Revenue per requisition was flat year over year in the quarter after four consecutive quarters of growth. We note that this was primarily due to lower revenue per requisition coming from the company’s Professional Lab Services (PLS) engagement, WJ Barnabas Health and HealthONE System of HCA Holdings, Inc. (HCA - Free Report) .
However, we expect this number to get a boost in the fourth quarter with HCA Healthcare coming online and ramping up through the end of the year. The company in fact expects PLS to have grown at a faster rate than the balance of the business in the fourth quarter of 2016. Subsequently, we remain optimistic about the company’s organic growth performance in the fourth quarter.
Quest Diagnostics Incorporated Price and EPS Surprise
Quest Diagnostics Incorporated Price and EPS Surprise | Quest Diagnostics Incorporated Quote
We believe the upside will be backed by the successful execution of the company’s strategy to grow its esoteric testing business and drive profitable growth.
In the recent past, Quest Diagnostics has witnessed significant growth through infectious disease testing, prescription drug monitoring and industry-leading wellness business. We expect these growth drivers to be active through the fourth quarter as well, benefiting the same metrics as in the preceding quarter.
Within prescription drug monitoring, the company currently has two new Zika tests that are awaiting FDA clearance. Earlier, Quest Diagnostics announced the availability of three new Quest Vantage cancer tests, designed to provide clinical actionable insight into an individual's risk of developing hereditary forms of cancer. Besides, the company also piloted a program for noninvasive prenatal screening to serve women of average risk in select regions. These new offerings are expected to strengthen the company’s position in this growing marketplace.
We are also looking forward to the company's latest alliance with Ancestry. Quest Diagnostics will become Ancestry's first CLIA approved lab partner to provide DNA testing, enabling Ancestry DNA subscribers to build their family based on the origins.
Also IBM and Quest Diagnostics’ combined launch of IBM Watson Genomics is also expected to have a positive impact on results in the to-be reported quarter. This service should help advance precision medicine by combining cognitive computing with genomic tumor sequencing. It should help oncologists match patients with cancer therapies and clinical trials based on the tumor's unique DNA.
We believe all these recent developments will significantly contribute to the company’s top line in the fourth quarter. In addition, several new relationships with hospitals and integrated delivery networks were the other growth drivers.
In this regard, we note that Quest Diagnostics outperformed the Zacks categorized Medical - Outpatient and Home Healthcare industry with respect to price movement. With a series of catalysts to boost growth, we expect the trend to continue in the coming days as well.
On the flip side, we note that over the last two years, Quest Diagnostics has faced multiple reimbursement issues that affected its revenues. The company is highly disappointed with the recent CMS (Centers for Medicare & Medicaid Services) proposal related to Protecting Access to Medicare Act (PAMA). While reimbursement pressure will continue to remain an overhang on results in the to-be reported quarter, the company expects to more than offset that pressure through test and business mix.
Also, it still remains a big question whether the volume improvement in recent times is sustainable. We should take into consideration that price headwinds persisted in the quarter, down 50 basis points compared to the year-ago quarter.
The company currently expects full-year revenues to be $7.51 billion compared to the earlier range of $7.47–$7.54 billion. This reflects a 0.5% increase over 2015 reported revenues (2.5% growth over 2015 on an equivalent basis). The current Zacks Consensus Estimate for revenues is pegged at $7.52 billion, just above the guidance range. In addition, the company’s 2016 adjusted EPS expectation range has been tightened to the range of $5.07–$5.12 from the earlier range of $5.02–$5.17.
Earnings Whispers
Our proven model does not conclusively show that Quest Diagnostics is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Quest Diagnostics has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.27. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Quest Diagnostics has a Zacks Rank #2, which increases the predictive power of ESP. However, an ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are two companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Histogenics Corporation has a positive Earnings ESP of 12.77% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Blueprint Medicines Corporation (BPMC - Free Report) has an Earnings ESP of +6.85% and a Zacks Rank #2.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see specific recommendations to help you pick today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>