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Quest Diagnostics (DGX) Q2 Earnings Beat, Base Testing Strong

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Quest Diagnostics Incorporated’s (DGX - Free Report) second-quarter 2021 adjusted earnings per share of $3.18 surpassed the Zacks Consensus Estimate by 10.8%. Adjusted earnings registered a stupendous 123.9% rise from the year-ago adjusted figure of $1.42 per share.

Certain one-time expenses like the ones related to amortization expenses, and certain restructuring and integration charges were excluded from the quarter’s adjusted figures.

GAAP earnings from continuing operations came in at $4.96 per share, marking a 264.7% rise from the year-ago period.

Reported revenues in the second quarter improved 39.5% year over year to $2.55 billion. The same beat the consensus estimate by 6.7%.

Quarterly Details

Diagnostic information services revenues in the quarter were up 40.2% on a year-over-year basis to $2.47 billion.

Volumes (measured by the number of requisitions) improved 45.2% year over year in the second quarter (up 40.1% organically). Revenue per requisition, however, dropped 3.6% year over year.


Cost of services during the reported quarter was $1.57 billion, up 28.2% year over year. Gross margin was 38.6%, reflecting expansion of 546 basis points (bps) from the year-ago figure.

Selling, general and administrative expenses increased 19.2% to $429 million in the quarter under review. Adjusted operating margin of 21.8% represented an 834-bps expansion year over year.

Cash, Capital Structure and Solvency

Quest Diagnostics exited the second quarter of 2021 with cash and cash equivalents of $560 million compared with $1.23 billion at the end of the first quarter. Cumulative net cash provided by operating activities through the end of the second quarter was $1.19 billion compared with $602 million in the year-ago period.

Till the second quarter, the company has repurchased 12.5 million shares for $1.6 billion. At the end of the second quarter, the company had $1.3 billion available under its existing share repurchase authorization.

2021 Guidance

The company initiated its full-year 2021 guidance.

Currently, the company expects to report net revenues in the range of $9.54 billion to $9.79 billion, implying an expected 1.1% to 3.7% growth from the year-ago period. The Zacks Consensus Estimate is pegged at $9.54 billion, implying 0.2% growth.

Full-year adjusted EPS is expected in the band of $10.65 to $11.35. The Zacks Consensus Estimate is pegged at $11.22.

2021 operating cash flow is expected to be at least $1.9 billion. Capital expenditures are expected to be at least $400 million.

Our Take

Quest Diagnostics reported better-than-expected second-quarter adjusted earnings and revenues. According to the company, this is the first quarter since 2019 in which it recorded organic base testing revenue growth. This was primarily driven by contributions from new hospital lab management contracts as well as people returning to the healthcare system.

However, despite a very strong first-half performance, the company’s sluggish full-year revenue growth projection worries us. In terms of COVID-19 diagnostic testing, we expect to see the company registering considerable reduction in numbers over the next few months due to a drastic fall in COVID-19 cases in the United States and other major developed countries.

Zacks Rank & Key Picks

Currently, Quest Diagnostics carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks from the same space are AMN Healthcare Services Inc (AMN - Free Report) , Catalent, Inc. (CTLT - Free Report) and Align Technology, Inc. (ALGN - Free Report) .

Catalent currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its fourth-quarter fiscal 2021 adjusted EPS is currently pegged at $1.04. The consensus estimate for fourth-quarter revenues is pegged at $1.13 billion. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for AMN Healthcare’s second-quarter 2021 adjusted EPS is currently pegged at $1.47. The consensus estimate for second-quarter revenues is pegged at $829.4 million. The company currently carries a Zacks Rank #2 (Buy).

Align Technology currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its second-quarter 2021 adjusted EPS is currently pegged at $2.56. The consensus estimate for its revenues stands at $937.5 million.