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Reasons to Retain Quest Diagnostics (DGX) Stock for Now
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Quest Diagnostics Inc. (DGX - Free Report) is well-poised for growth in the coming quarters, backed by stronger base volume trends and growth from acquisitions. In the second quarter of 2023, Quest Diagnostics’ earnings and revenues were well ahead of estimates. The highly specialized Advanced Diagnostics portfolio represents a key pillar for the company to support faster growth across all customer segments.
However, COVID-19 testing revenues and a competitive landscape are concerning for DGX. In the past year, this Zacks Rank #3 (Hold) stock has decreased 4.3% compared with the industry’s 11.1% fall and a 4.2% rise of the S&P 500 composite.
The renowned provider of diagnostic information services has a market capitalization of $15.15 million. Quest Diagnostics has an earnings yield of 6.44% compared with the industry’s yield of 4.08%. The company’s earnings surpassed estimates in all the trailing four quarters, delivering an average surprise of 4.92%.
Let’s delve deeper.
Tailwinds
Q1 Performance: Quest Diagnostics exceeded the Zacks Consensus Estimates for both earnings and revenues in the second quarter of 2023. The robust base business performance reflected the company’s ongoing efforts to partner with health plans, hospitals and physicians amid a continued return to care.
The M&A strategy continues to be a key growth driver for DGX, with the integration of Haystack Oncology remaining well on track. The acquisition positions the company to enter the high-growth area of minimal residual disease or MRD testing. Across the health system business, the Professional Lab Services (“PLS”) business had a very strong quarter, reflecting growth from new and existing PLS relationships. Further, an updated outlook for the full year boosts optimism while operating in a tight labor market.
Image Source: Zacks Investment Research
The Base Volume Improves: Across Physician Lab Services, a large number of strategic partnerships with health plans involve value-based arrangements, which are leading to faster growth and share gains than traditional relationships. Within Hospital labs, progress in terms of partnerships with Northern Light Health, Lee Health and Tower Health is particularly encouraging in the PLS business, which delivered a strong second quarter.
In Consumer Health, the company also recorded strong base business growth on its digital platform — questhealth.com. The initial uptake of the company’s first-ever consumer-initiated genetic health test, Genetic Insights, is promising.
The Strong Potential of Advanced Diagnostics: Within this segment, the QuestAD-Detect Alzheimer's blood test is adding to Neurology’s growth trends, fortifying the company’s position in the rapidly evolving Alzheimer’s landscape. In addition, Quest Diagnostics continues to hold growth momentum in the cardiometabolic, endocrinology, infectious disease and carrier and prenatal genetic screening services.
Downsides
COVID-19 Testing Revenues Drop: In the second quarter, the company’s COVID-19 testing revenues declined significantly, leading to lower contributions from Diagnostic Information Services than the prior-year quarter. Further, the year-over-year decline in the top and bottom lines are discouraging.
A Competitive Landscape: Quest Diagnostics faces intense competition, primarily from LabCorp, other commercial laboratories and hospitals. While pricing is an important factor in choosing a testing lab, hospital-affiliated physicians expect a high level of service, including the accurate and rapid turnaround of testing results. As a result, DGX and other commercial labs compete with hospital-affiliated labs, primarily based on the quality of service.
Estimate Trend
The Zacks Consensus Estimate for Quest Diagnostics’ 2023 earnings per share (EPS) has moved up from $8.69 to $8.70 in the past 30 days.
The consensus estimate for the company’s 2023 revenues is pegged at $9.16 billion. This suggests a 7.3% decline from the year-ago reported number.
Haemonetics has an earnings yield of 4.10% against the industry’s -3.18%. Haemonetics’ earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 19.39%. Its shares have risen 20.3% against the industry’s 7.3% decline in the past year.
DexCom, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 42.9% compared with the industry’s 15.9%. Shares of the company have rallied 21% against the industry’s 6% decline over the past year.
DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 28.83%.
Penumbra, sporting a Zacks Rank #1 at present, has an estimated earnings growth rate of 56.6% for 2024, compared with the industry’s 23.8%. Shares of Penumbra have risen 41.7% against the industry’s 6% fall over the past year.
PEN’s earnings surpassed estimates in all of the trailing four quarters, the average surprise being 94.24%.
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Reasons to Retain Quest Diagnostics (DGX) Stock for Now
Quest Diagnostics Inc. (DGX - Free Report) is well-poised for growth in the coming quarters, backed by stronger base volume trends and growth from acquisitions. In the second quarter of 2023, Quest Diagnostics’ earnings and revenues were well ahead of estimates. The highly specialized Advanced Diagnostics portfolio represents a key pillar for the company to support faster growth across all customer segments.
However, COVID-19 testing revenues and a competitive landscape are concerning for DGX. In the past year, this Zacks Rank #3 (Hold) stock has decreased 4.3% compared with the industry’s 11.1% fall and a 4.2% rise of the S&P 500 composite.
The renowned provider of diagnostic information services has a market capitalization of $15.15 million. Quest Diagnostics has an earnings yield of 6.44% compared with the industry’s yield of 4.08%. The company’s earnings surpassed estimates in all the trailing four quarters, delivering an average surprise of 4.92%.
Let’s delve deeper.
Tailwinds
Q1 Performance: Quest Diagnostics exceeded the Zacks Consensus Estimates for both earnings and revenues in the second quarter of 2023. The robust base business performance reflected the company’s ongoing efforts to partner with health plans, hospitals and physicians amid a continued return to care.
The M&A strategy continues to be a key growth driver for DGX, with the integration of Haystack Oncology remaining well on track. The acquisition positions the company to enter the high-growth area of minimal residual disease or MRD testing. Across the health system business, the Professional Lab Services (“PLS”) business had a very strong quarter, reflecting growth from new and existing PLS relationships. Further, an updated outlook for the full year boosts optimism while operating in a tight labor market.
Image Source: Zacks Investment Research
The Base Volume Improves: Across Physician Lab Services, a large number of strategic partnerships with health plans involve value-based arrangements, which are leading to faster growth and share gains than traditional relationships. Within Hospital labs, progress in terms of partnerships with Northern Light Health, Lee Health and Tower Health is particularly encouraging in the PLS business, which delivered a strong second quarter.
In Consumer Health, the company also recorded strong base business growth on its digital platform — questhealth.com. The initial uptake of the company’s first-ever consumer-initiated genetic health test, Genetic Insights, is promising.
The Strong Potential of Advanced Diagnostics: Within this segment, the QuestAD-Detect Alzheimer's blood test is adding to Neurology’s growth trends, fortifying the company’s position in the rapidly evolving Alzheimer’s landscape. In addition, Quest Diagnostics continues to hold growth momentum in the cardiometabolic, endocrinology, infectious disease and carrier and prenatal genetic screening services.
Downsides
COVID-19 Testing Revenues Drop: In the second quarter, the company’s COVID-19 testing revenues declined significantly, leading to lower contributions from Diagnostic Information Services than the prior-year quarter. Further, the year-over-year decline in the top and bottom lines are discouraging.
A Competitive Landscape: Quest Diagnostics faces intense competition, primarily from LabCorp, other commercial laboratories and hospitals. While pricing is an important factor in choosing a testing lab, hospital-affiliated physicians expect a high level of service, including the accurate and rapid turnaround of testing results. As a result, DGX and other commercial labs compete with hospital-affiliated labs, primarily based on the quality of service.
Estimate Trend
The Zacks Consensus Estimate for Quest Diagnostics’ 2023 earnings per share (EPS) has moved up from $8.69 to $8.70 in the past 30 days.
The consensus estimate for the company’s 2023 revenues is pegged at $9.16 billion. This suggests a 7.3% decline from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics (HAE - Free Report) , DexCom (DXCM - Free Report) and Penumbra (PEN - Free Report) .
Haemonetics has an earnings yield of 4.10% against the industry’s -3.18%. Haemonetics’ earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 19.39%. Its shares have risen 20.3% against the industry’s 7.3% decline in the past year.
HAE sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
DexCom, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 42.9% compared with the industry’s 15.9%. Shares of the company have rallied 21% against the industry’s 6% decline over the past year.
DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 28.83%.
Penumbra, sporting a Zacks Rank #1 at present, has an estimated earnings growth rate of 56.6% for 2024, compared with the industry’s 23.8%. Shares of Penumbra have risen 41.7% against the industry’s 6% fall over the past year.
PEN’s earnings surpassed estimates in all of the trailing four quarters, the average surprise being 94.24%.