Quest Diagnostics, Inc. ( DGX Quick Quote DGX - Free Report) , as part of its two-point strategy, has been focusing on areas with high potential. However, the ongoing COVID-led economic crisis remains a major cause of concern for this Zacks Rank #3 (Hold) company.
In the past year, shares of Quest Diagnostics have outperformed its
industry. The stock has gained 16.4% compared with 12.2% rise of the industry.
The company reported better-than-expected first-quarter 2021 revenues. 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.
In the first quarter, base business continued to recover to near pre-pandemic levels. Compared to the first-quarter 2019 baseline, total base testing volumes increased 1.5% and benefited from M&A and new PLS partnerships that began in 2020. According to Quest Diagnostics, as the United States exits the pandemic, it is well positioned to grow while addressing the routine care issues that have been postponed over the past year.
This helped offset the reduction in demand for COVID-19 testing, which was in line with industry trends. However, despite decline in demand for COVID-19 testing, the company performed an average of 101,000 COVID-19 molecular tests per day. Overall, in the first quarter, approximately 9.1 million molecular tests and nearly 900,000 serology tests were performed, contributing nearly 21% to volume growth.
According to the company, it will continue to realize demand for coronavirus testing going forward on the fact that this will help control the spread of the virus in addition to reducing hospitalization and saving lives. Further, continued testing will be the key to help the economy to reopen as more Americans become vaccinated.
Meanwhile, the updated first-half 2021 outlook also looks impressive on raised revenue and operating cash flow expectations.
On the flip side,pressure on volume, owing to a difficult macro-economic situation and pricing, constitutes the primary risk for Quest Diagnostics. In the first quarter, the impact of severe winter negatively impacted volumes by approximately 2.5%.
Compared to the first-quarter 2019 baseline, total base testing volumes increased 1.5% and benefited from M&A and new PLS partnerships that began in 2020. However, excluding the net impact of weather in the first quarter as well as M&A and new PLS wins over the last year, base testing volumes declined approximately 7% in the first quarter versus the 2019 baseline, and were down 5% in March.
Modest unit price headwinds were in line with the company’s expectations.
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.
A few better-ranked stocks from the broader medical space are
National Vision Holdings, Inc. ( EYE Quick Quote EYE - Free Report) , Boston Scientific Corporation ( BSX Quick Quote BSX - Free Report) and Envista Holdings Corporation ( NVST Quick Quote NVST - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.
National Vision has a projected long-term earnings growth rate of 23%.
Boston Scientific has a projected long-term earnings growth rate of 9%.
Envista Holdings has an estimated long-term earnings growth rate of 26%.
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