We recently reiterated our Neutral recommendation on Quest Diagnostics (DGX - Analyst Report), the leading providers of commercial laboratory services in North America. While we hold a favorable view regarding the company’s organizational restructuring and efforts to align its assets with core strategies in order to restore growth, concerns linger around the overall soft industry trends leading to low volume growth for the company. The stock currently carries a Zacks Rank #4 (Sell).
Why at Neutral?
Pressure on volume owing to the difficult macroeconomic situation and pricing constitute the primary risk for Quest Diagnostics. In the last reported quarter, volume (measured by the number of requisitions) inched down 1.1% leading the company to lower its fiscal 2012 revenue guidance. We are concerned with the weak volume growth over the last few quarters and expect this low level of employment and slow growth of commercially insured lives to continuously impact the company’s overall growth until the economy rebounds.
However, over the past several years, Quest Diagnostics has been making efforts to align its assets with core strategies. The latest among these are the divestment of its OralDNA Labs business to refocus its resources to core diagnostic information services and the acquisition of UMass outreach labs to create the company’s planned 'lab of the future' . We hold a favorable view regarding the company’s organizational restructuring in order to restore growth. We also appreciate the company’s current focus on gene-based, esoteric testing, which has immense potential.
Over the past 30 days, none of the 15 firms covering the stock made any estimate revision for the current fiscal implying that they still hold similar views on the stock.
Other Stocks to Consider
While we prefer to remain on the sidelines on Quest Diagnostics, other medical device stocks worth a look are Derma Science Inc. (DSCI - Snapshot Report) and Nxstage Medical Inc. (NXTM - Snapshot Report). Both the stocks carry a Zacks Rank #1 (Strong Buy).