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Quest Diagnostics (DGX) COVID-19 Test Sales Solid, Volume Dull

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On Jan 15, we issued an updated research report on Quest Diagnostics, Inc. (DGX - Free Report) . As part of its two-point strategy, Quest Diagnostics has been focusing on areas with high potential. However, the ongoing COVID-19 led economic crisis remains a major cause of concern for this Zacks Rank #3 (Hold) company.

Year to date, shares of Quest Diagnostics have outperformed its industry. The stock has gained 17.5% compared with 16.4% rise of the industry.

Quest Diagnostics reported better-than-expected third-quarter figures. Strong year-over-year improvement in adjusted earnings as well as revenues was encouraging, driven by continued demand from COVID-19 testing as well as the rapid recovery from healthcare utilization.

Till the time of third-quarter earnings call, Quest Diagnostics performed more than 22 million COVID-19 molecular and serology tests, more than any other provider. The company has also made several innovations that are enabling people to return to work, the classroom, and on the athletic field.

Management noted strong signs of the healthcare system returning to pre-pandemic levels with base testing volume gradually improving. The updated full-year outlook also looks impressive, implying further rebound in base business organic volume ahead.

Following a dull second quarter, in the third quarter, Quest Diagnostics witnessed improved performance of the base business (testing volumes excluding COVID-19 molecular and serology testing volumes). Orders for organic base testing compared to pre-pandemic business, which had declined in high single digits in July, witnessed mid-to-high single digit decline in September versus the prior year.

On the flip side, Quest Diagnostics’ year-over-year decline in third-quarter reported earnings was concerning. In the reported quarter, there was a modest 5% decline in base testing volumes. Volume measured by the number of requisitions although increased 19.7%, it mainly stemmed from a significant demand for COVID-19 testing services, which might not be termed as a sustainable factor.

We should also take into consideration that the unit price headwinds persisted through the third quarter (1.7%). We also expect that a low level of employment and slow growth of commercially-insured lives will continuously impact the company’s overall improvement until the economy rebounds.

Key Picks

Some better-ranked stocks from the broader medical space are Hologic, Inc. (HOLX - Free Report) , IDEXX Laboratories, Inc. (IDXX - Free Report) and Patterson Companies, Inc. (PDCO - Free Report) .

Hologic’s long-term earnings growth rate is estimated at 17.4%. The company presently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

IDEXX’s long-term earnings growth rate is estimated at 15.8%. It currently carries a Zacks Rank #2 (Buy).

Patterson Companies’ long-term earnings growth rate is estimated at 11.1%. The company presently carries a Zacks Rank #2.

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