Although the overall economic prospect for the second half of 2021 was originally bright on lower COVID-19 cases and improving market trends, the mutations of SARS-CoV-2 have led to an alarming rise in cases in recent weeks.
While uncertainties over the pace of economic recovery due to the resurgence of COVID-19 cases led to market volatility, the spike in infection rates has opened up opportunities for testing stocks.
Meanwhile, last week, the President released a mandate asking federal employees to ensure vaccination, and large and small private sector businesses to get their staff fully vaccinated and regularly tested. This certainly bodes well for diagnostic stocks.
Let us delve deeper.
Decline in Testing Demand in 1H21
When the pandemic first hit, demand for COVID-19 testing was at a peak which led diagnostic companies to witness a significant boost in testing revenues during 2020.
However, the story surrounding COVID-19 eventually changed since the beginning of 2021. The diagnostics companies experienced a "sudden" and fundamental drop in demand for COVID-19 testing, particularly for surveillance and screening with rapid testing. The changing testing landscape driven by a significant reduction in coronavirus cases and the rollout of vaccines across the globe led many diagnostics companies to witness a substantial drop in testing demand.
In line with this,
Abbott Laboratories ( ABT Quick Quote ABT - Free Report) quantified the change – noting that in April, COVID-19 testing sales declined to $2.2 billion in the first quarter from $2.4 billion in the last-reported quarter. In June 2021, the company lowered its financial outlook for 2021 due to a "sharp and rapid" decline in demand for COVID-19 testing.
Furthermore, in June 2021,
QIAGEN ( QGEN Quick Quote QGEN - Free Report) lowered its full-year 2021 outlook due to lower COVID-19 test demand. The company slashed its full-year 2021 outlook for net sales growth to at least 12% constant exchange rate (CER) compared to the prior guidance of about 18% to 20% CER. Resurgence of COVID-19 Cases in 2H21 Per a report by Reuters, the United States is reporting more than 94,819 COVID-19 cases on a seven-day average, a five-fold increase between July-August 2021.
The Delta variant now accounts for more than 90% of known COVID-19 cases in the United States, according to the Centers for Disease Control and Prevention (CDC). The Delta variant is more infectious and effective at evading vaccines. Even in vaccinated individuals, the variant is highly contagious, which allows it to spread easily.
Although the economy is ravaged with the new strain of the virus, diagnostics stocks are starting to recover on higher demand for COVID-19 testing.
Diagnostics Stocks in Focus on Biden’s Mandate
As stated earlier,
President Joe Biden announced a new mandate on Sep 9 aimed at curtailing the surge in COVID-19 infections, which signals at a sharp rise in testing. The President unveiled a series of steps to combat the surging pandemic, including the announcement of a forthcoming federal rule that all businesses with 100 or more employees have to ensure that every worker is either vaccinated for COVID-19 or will have to submit weekly coronavirus testing results.
The President’s plan on the diagnostic side of the mandates calls for the government to work on ramping up test supply.
Going by a Reuters report, QIAGEN has already shown support for this mandate. At the same time, Abbott stated that it is quickly working to scale up manufacturing of its BinaxNOW and ID NOW test kits and hire additional employees.
Going by the aforementioned discussion, diagnostics companies are expected to witness a sharp rise in testing demand over the coming months. Investors can choose to bet on the following stocks that have shown tremendous promise amid the pandemic and challenging market conditions. These stocks also possess considerable growth potential.
Our first pick is
Quest Diagnostics Incorporated ( DGX Quick Quote DGX - Free Report) recently raised its full-year projection significantly. The company noted that since its second-quarter earnings release on Jul 22, COVID-19 molecular testing volumes were stronger than anticipated through the end of August on the Delta variant spike. Revenues for 2021 are now expected in the range of $9.84 billion to $10.09 billion, up from the prior view of $9.54 billion to $9.79 billion.
The company also noted that it expects the Delta-driven surge to stay stronger than anticipated, with Quest Diagnostics now assuming average volumes of at least 40,000 molecular tests daily for the second half of the year versus the previous guidance of 20,000.
Image Source: Zacks Investment Research
The stock currently carries a Zacks Rank #3 (Hold). Over the past three months, the stock has gained 20% against the industry’s 24.3% decline.
Our next pick is
Quidel Corporation ( QDEL Quick Quote QDEL - Free Report) . In September 2021, Quidel announced that the company will make Quidel’s non-prescription QuickVue At-Home OTC COVID-19 Test available to consumers at more than 7,000 CVS Pharmacy locations across the United States and online at cvs.com. The company recently witnessed a surge in demand for the portfolio of Sofia SARS and QuickVue COVID-19 rapid antigen tests. Making rapid antigen tests available through CVS Pharmacy will help Quidel address customers’ demand. Image Source: Zacks Investment Research
This Zacks Rank #3 company has gained 28.6% over the past three months compared with the industry’s 2.4% rise.
Laboratory Corporation of America Holdings or LabCorp ( LH Quick Quote LH - Free Report) is our final pick. In terms of COVID-19 testing, till the end of the second quarter, LabCorp performed more than 50 million tests. In the second quarter, a steady decline in positive cases led to an overall drop in COVID-19 testing. However, following the rise in demand later, the company announced expanded availability of its Pixel by Labcorp COVID-19 PCR Test Home Collection Kits at 6,000 Walgreens stores nationwide and through Walgreens’ collaborations with on-demand delivery services like DoorDash and Instacart. Image Source: Zacks Investment Research
This Zacks Rank #3 company has gained 14.2% over the past three months compared with the industry’s 8.2% rise. You can see
the complete list of today’s Zacks #1 Rank stocks here.