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Quest Diagnostics (DGX) Q1 Earnings Miss, Base Recovery Strong

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Quest Diagnostics Incorporated’s (DGX - Free Report) first-quarter 2020 adjusted earnings per share of $3.76 lagged the Zacks Consensus Estimate by a penny. Adjusted earnings however registered a stupendous 298.9% rise from the year-ago adjusted figure of 94 cents per share.

Certain one-time expenses like the ones related to the COVID-19 pandemic and their resultant impact of 3 cents; amortization expenses, and certain restructuring and integration charges were excluded from the quarter’s adjusted figures.

GAAP earnings from continuing operations came in at $3.46 per share, marking a 373.9% rise from the year-ago period.

Reported revenues in the first quarter improved 49.3% year over year to $2.72 billion. The same beat the consensus estimate by 1.3%.

Quarterly Details

Volumes (measured by the number of requisitions) improved 25.6% year over year in the first quarter (up 21.6% organically). Revenue per requisition improved 20.5% year over year.

Diagnostic information services revenues in the quarter were up 51.5% on a year-over-year basis to $2.64 billion.


Cost of services during the reported quarter was $1.63 billion, up 28% year over year. Gross margin was 40.2%, reflecting expansion of 992 basis points (bps) from the year-ago figure.

Selling, general and administrative expenses increased 17.3% to $407 million in the quarter under review. Adjusted operating margin of 25.3% represented a 1400-bps expansion year over year.

Cash, Capital Structure and Solvency

Quest Diagnostics exited the first quarter of 2021 with cash and cash equivalents of $1.23 billion compared with $1.16 billion at the end of 2020. Cumulative net cash provided by operating activities through the end of the first quarter was $731 million compared with $247 million in the year-ago period.

The company, on the earnings call, announced its plans to launch a $1.5-billion accelerated share repurchase program in the coming days.

In the first quarter, the company repurchased 3.4 million shares for $410 million. At the end of the first quarter, $2.5 billion remained under the company's existing share repurchase authorization.

1H 2021 Outlook

The company has updated its earlier-provided first-half 2021 projection.

Currently, the company expects to report net revenues in the range of $5 billion to $5.20 billion, implying an expected 37% to 42.5% growth from the year-ago period. This is an improvement from the earlier projection of $4.85 billion to $5.15 billion, an expected 32.9% to 41.1% growth. First-half adjusted EPS range has been narrowed to a band of $6.30 to $6.80 from the earlier projection of $5.90 to $6.90.

First-half operating cash flow is expected to be at least $1 billion compared with the earlier expectation of $800 million. Capital expenditures are expected to be at least $200 million (unchanged).

Our Take

Quest Diagnostics reported lower-than-expected first-quarter earnings but exceeded the revenue estimates. Strong year-over-year improvement in adjusted earnings as well as revenues was encouraging. Contributions from acquisitions and Professional Lab Services relationships accelerated base business growth. This helped offset the reduction in demand for COVID-19 testing, which was in line with industry trends.

Meanwhile, the updated first-half 2021 outlook also looks impressive on raised revenue and operating cash flow expectations.

Zacks Rank & Key Picks

Currently, Quest Diagnostics carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space include Semler Scientific Inc. (SMLR - Free Report) , Owens & Minor, Inc. (OMI - Free Report) and DENTSPLY SIRONA Inc. (XRAY - Free Report) .

Semler, which currently carries a Zacks Rank #2 (Buy), is expected to release results on May 3. The Zacks Consensus Estimate for the company’s first-quarter 2021 adjusted EPS is currently pegged at 48 cents. The consensus estimate for first-quarter revenues stands at $11.9 million.

Owens & Minor currently carries a Zacks Rank #1 (Strong Buy) and is scheduled to release results on May 5. The Zacks Consensus Estimate for its first-quarter 2021 adjusted EPS is currently pegged at 97 cents. The consensus estimate for first-quarter revenues stands at $2.29 billion. You can see the complete list of today’s Zacks #1 Rank stocks here.

DENTSPLY SIRONA too has a Zacks Rank #2 and is slated to release results on May 6. The Zacks Consensus Estimate for first-quarter 2021 adjusted EPS is currently pegged at 55 cents. The consensus estimate for revenues stands at $929.3 million.

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