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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 collaborations with health plans, hospitals and physicians amid a broad return to care. In the past few quarters, the company made considerable progress in improving the profitability of the base business. However, COVID-19 testing revenues and a competitive landscape are concerning for DGX.

In the past year, this Zacks Rank #3 (Hold) stock has declined 7.6% compared with the industry’s 0.4% rise and a 11.5% rise of the S&P 500 composite.

The renowned provider of diagnostic information services has a market capitalization of $14.09 million. Quest Diagnostics has an earnings yield of 6.92% compared with the industry’s yield of 4.09%. The company’s earnings surpassed estimates in all the trailing four quarters, delivering an average surprise of 4.92%.

Let’s delve deeper.


Accelerate Growth Strategy Bodes Well:  Quest Diagnostics continues to progress in terms of its two-point business strategy, the first of which is accelerating growth.

In light of this, the company recently completed the acquisition of Haystack Oncology, which was announced on the day of the first-quarter 2023 earnings call.  Combining with Haystack puts DGX in a solid position to enter the high-growth area of minimal residual disease or MRD testing. With the post-acquisition integration remaining on track, the company expects to introduce the first MRD test in early 2024. The test will likely be launched from the Oncology Center of Excellence in Lewisville, Texas, where the solid tumor expanded panel for tumor sequencing and therapy monitoring was recently introduced. The Haystack acquisition will be modestly dilutive to earnings over the next three years and accretive by 2026.

Volume Rebound in the Base Business: Quest Diagnostics is benefiting from solid volume growth across its base business (which refers to testing volumes, excluding COVID-19 testing).

The collaborations with health plans, hospitals and physicians have aided the company in the elevated service demand, which marks a continued return to care. With the severity of the COVID-19 pandemic significantly reducing over the past few quarters, the company is making substantial progress in improving the profitability of the base business compared to the pandemic-laden phase up to the first half of 2022.

Upbeat Guidance:  Full-year net revenue estimates were raised to a new range of $9.12-$9.22 billion (from the earlier band of $8.93-$9.08 billion). The Zacks Consensus Estimate for the same is pegged at $9.02 billion.

Zacks Investment ResearchImage Source: Zacks Investment Research

Adjusted earnings per share are now expected in the range of $8.50-$8.90 (up from the earlier projection of $8.45-$8.95). The Zacks Consensus Estimate for the metric is pegged at $8.67.


Low COVID-19 Testing Revenues Drag the Top Line: Quest Diagnostics posted dismal second-quarter 2023 results, with the top line plunging nearly 88% in COVID-19 testing revenues. Citing this, Diagnostic Information Services reported lower contributions in the quarter despite solid growth in the base business.

Competitive Landscape: Quest Diagnostics faces intense competition from LabCorp, other commercial laboratories and hospitals. Hospitals control an estimated 60% of the diagnostic test market, compared to Quest Diagnostic’s 15% share.

While pricing is essential in choosing a testing lab, hospital-affiliated physicians expect a high level of service, including an accurate and rapid turnaround of testing results. As a result, Quest Diagnostics and other commercial labs compete with hospital-affiliated labs primarily based on the quality of service.

Estimate Trends

The Zacks Consensus Estimate for Quest Diagnostics’ 2023 earnings per share (EPS) has increased from $8.67 to $8.70 in the past 60 days.

The consensus estimate for the company’s 2023 revenues is pegged at $9.15 billion. This suggests a 7.5% decline from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Haemonetics (HAE - Free Report) , HealthEquity, Inc. (HQY - Free Report) and SiBone (SIBN - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Haemonetics’ stock has risen 19.9% in the past year. Earnings estimates for Haemonetics have increased from $3.56 to $3.74 in 2023 and $3.96 to $4.07 in 2024 in the past 30 days. It currently sports Zacks Rank #1.

HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 19.39%. In the last reported quarter, it posted an earnings surprise of 38.16%

HealthEquity, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 23.5%. HQY’s earnings surpassed estimates in all the trailing four quarters, with an average of 13%.

HealthEquity has lost 3.9% compared with the industry’s 10.2% decline in the past year.

Estimates for SiBone’s2023 loss have narrowed from $1.42 to $1.27 per share in the past 30 days. Shares of the company have increased 31% in the past year compared with the industry’s rise of 1.9%. It currently carries a Zacks Rank #2.

SIBN’s earnings beat estimates in all the trailing four quarters, the average surprise being 20.37%. In the last reported quarter, SiBone delivered an earnings surprise of 26.83%.

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