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Quest Diagnostics (DGX - Free Report) has been focusing on areas with high potential as part of its two-point strategy. Positive demography and cost reduction initiatives are the other upsides. Over the past several quarters, soft industry trends, resulting in a low-volume environment, have acted as a dampener for Quest Diagnostics. The stock currently carries a Zacks Rank #3 (Hold).
In the past year, Quest Diagnostics has outperformed its industry. The stock has lost 0.6% compared with 34.7% decline of the industry.
Quest Diagnostics reported better-than-expected third-quarter 2022 earnings and revenues. The base business grew 5% despite the impact of Hurricane Ian. The company’s performance rebounded in August and September from a softer volume trend that it witnessed earlier in the year. Before Hurricane Ian hit in September, Quest Diagnostics witnessed some of its historically highest base testing volumes.
The company’s legacy base business grew 5.1% in the third quarter amid softer utilization trends, which impacted the entire healthcare industry. During the reported quarter, base business revenue per requisition was up 3.3%. The more favorable pricing environment remained consistent with the company’s expectations, with unit price reimbursement pressure of less than 50 basis points in the quarter.
In addition, Quest Diagnostics continued to invest in advanced diagnostics and consumer-initiated testing. To help offset inflationary pressure, it continues to pursue its operational excellence strategy and has been closely managing the cost structure through the company’s invigorate initiatives.
With a bullish expectation for the remainder of 2022, the company raised its full-year guidance.
In terms of the Protecting Access to Medicare Act (PAMA), the company is optimistic about the recently introduced federal laboratory legislation called the Saving Access to Laboratory Services Act (SALSA). The company believes that SALSA has the potential to fix PAMA permanently. It would set the Medicare Clinical Lab Fee Schedule back on a sustainable path. If SALSA is not passed, it will result in Medicare cuts over three years, with additional cuts thereafter.
On the flip side, in the third quarter of 2022, Quest Diagnostics’ revenues and adjusted earnings fell year over year on a significant drop in COVID-19 testing demand. Testing revenues were $316 million in the third quarter, down 55% from 2021 and 11% from the sequentially-last quarter.
The company noted that after plateauing in June and July, COVID-19 molecular testing volumes steadily declined. Quest Diagnostics expects COVID-19 molecular volumes to average down to 10,000 to 15,000 per day in the fourth quarter.
Diagnostic Information Services revenues declined 10.5% year over year, reflecting lower COVID-19 testing services sales in the reported quarter. The year-over-year contraction in margins is also worrying. The gross margin was 34.9%, reflecting a 488-basis point (bp) contraction from the year-ago figure. Adjusted operating margin of 16.3% represented an 815-bp contraction year over year.
Key Picks
Some better-ranked stocks in the broader medical space that have announced quarterly results are AMN Healthcare Services, Inc. (AMN - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Merit Medical Systems, Inc. (MMSI - Free Report) .
AMN Healthcare, currently carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $2.57, which beat the Zacks Consensus Estimate by 10.3%. Revenues of $1.14 billion outpaced the consensus mark by 3.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed estimates in all the trailing four quarters, the average being 10.9%.
Medpace Holdings, sporting a Zacks Rank #1, reported third-quarter 2022 EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $383.7 million outpaced the consensus mark by 8.1%.
Medpace Holdings has an estimated growth rate of 44.9% for full-year 2022. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average being 22%.
Merit Medical, currently carrying a Zacks Rank of 2, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.
Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.
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Quest Diagnostics (DGX) Volume Growth Aids, Margin Woes Stay
Quest Diagnostics (DGX - Free Report) has been focusing on areas with high potential as part of its two-point strategy. Positive demography and cost reduction initiatives are the other upsides. Over the past several quarters, soft industry trends, resulting in a low-volume environment, have acted as a dampener for Quest Diagnostics. The stock currently carries a Zacks Rank #3 (Hold).
In the past year, Quest Diagnostics has outperformed its industry. The stock has lost 0.6% compared with 34.7% decline of the industry.
Quest Diagnostics reported better-than-expected third-quarter 2022 earnings and revenues. The base business grew 5% despite the impact of Hurricane Ian. The company’s performance rebounded in August and September from a softer volume trend that it witnessed earlier in the year. Before Hurricane Ian hit in September, Quest Diagnostics witnessed some of its historically highest base testing volumes.
The company’s legacy base business grew 5.1% in the third quarter amid softer utilization trends, which impacted the entire healthcare industry. During the reported quarter, base business revenue per requisition was up 3.3%. The more favorable pricing environment remained consistent with the company’s expectations, with unit price reimbursement pressure of less than 50 basis points in the quarter.
In addition, Quest Diagnostics continued to invest in advanced diagnostics and consumer-initiated testing. To help offset inflationary pressure, it continues to pursue its operational excellence strategy and has been closely managing the cost structure through the company’s invigorate initiatives.
With a bullish expectation for the remainder of 2022, the company raised its full-year guidance.
In terms of the Protecting Access to Medicare Act (PAMA), the company is optimistic about the recently introduced federal laboratory legislation called the Saving Access to Laboratory Services Act (SALSA). The company believes that SALSA has the potential to fix PAMA permanently. It would set the Medicare Clinical Lab Fee Schedule back on a sustainable path. If SALSA is not passed, it will result in Medicare cuts over three years, with additional cuts thereafter.
On the flip side, in the third quarter of 2022, Quest Diagnostics’ revenues and adjusted earnings fell year over year on a significant drop in COVID-19 testing demand. Testing revenues were $316 million in the third quarter, down 55% from 2021 and 11% from the sequentially-last quarter.
The company noted that after plateauing in June and July, COVID-19 molecular testing volumes steadily declined. Quest Diagnostics expects COVID-19 molecular volumes to average down to 10,000 to 15,000 per day in the fourth quarter.
Diagnostic Information Services revenues declined 10.5% year over year, reflecting lower COVID-19 testing services sales in the reported quarter. The year-over-year contraction in margins is also worrying. The gross margin was 34.9%, reflecting a 488-basis point (bp) contraction from the year-ago figure. Adjusted operating margin of 16.3% represented an 815-bp contraction year over year.
Key Picks
Some better-ranked stocks in the broader medical space that have announced quarterly results are AMN Healthcare Services, Inc. (AMN - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Merit Medical Systems, Inc. (MMSI - Free Report) .
AMN Healthcare, currently carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $2.57, which beat the Zacks Consensus Estimate by 10.3%. Revenues of $1.14 billion outpaced the consensus mark by 3.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed estimates in all the trailing four quarters, the average being 10.9%.
Medpace Holdings, sporting a Zacks Rank #1, reported third-quarter 2022 EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $383.7 million outpaced the consensus mark by 8.1%.
Medpace Holdings has an estimated growth rate of 44.9% for full-year 2022. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average being 22%.
Merit Medical, currently carrying a Zacks Rank of 2, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.
Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.