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Reasons to Retain Quest Diagnostics (DGX) Stock for Now
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Quest Diagnostics Inc. (DGX - Free Report) is likely to grow in the coming quarters, backed by the strength of its advanced diagnostics offerings. Within the base business, the company made substantial progress in its strategy to drive top-line growth across core customer channels and improve profitability. In addition, DGX delivered the planned Invigorate goal, which is highly appreciated.
However, the significant downturn in COVID-19 testing revenues and a competitive landscape are concerning for the company.
In the past year, this Zacks Rank #3 (Hold) stock has decreased 15.1% compared to the industry’s 5.7% rise and 19.6% growth of the S&P 500 composite.
The renowned provider of diagnostic information services has a market capitalization of $14.05 billion. Quest Diagnostics has an earnings yield of 7.16% compared with the industry’s yield of 3.78%. The company’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 2.13%.
Let’s delve deeper.
Tailwinds
Strong Potential of Advanced Diagnostics: In the fourth quarter of 2023, the company delivered robust growth across multiple clinical areas, including advanced cardiometabolic, prenatal and hereditary genetics and neurology. In addition, Quest Diagnostics bolstered its oncology offering with a strategic investment in higher growth and minimal residual disease (MRD) testing.
In addition, the company announced a collaboration with Universal DX — the developer of Signal-C blood tests for colorectal cancer screening, including precancerous lesions. Through its partnership with Scipher Medicine, Quest Diagnostics is expanding patient access to the PRISM-RA test to help with treatment selection for rheumatoid arthritis.
Image Source: Zacks Investment Research
Growth in Base Business: In 2023, the company’s strong ties with health plans played a crucial role in its growth, resulting in a high-single-digit rise in revenues from health plans compared to the last year. The base business increased nearly 4.7% in the fourth quarter of 2023. The execution of hospital outreach and independent lab acquisitions have generated volume for the company’s physician channel.
Continued progress in the most recent PLS relationships, including Northern Light Health, Lee Health and Tower Health, has been encouraging, two of which the company concluded during the fourth quarter. In addition, the consumer-initiated testing service, questhealth.com, generated revenues of nearly $45 million, along with strong base business growth.
A Strategic Imperative to Drive Operational Excellence: At the end of 2023, DGX’s cost excellence program, Invigorate, delivered its targeted 3% annual cost savings and productivity improvement. In addition, Quest Diagnostics completed front-end automation upgrades in its Pittsburgh and Dallas laboratories, which will improve quality and productivity.
It also expanded the use of AI to improve quality, efficiency and workforce experience in several clinical areas, such as microbiology. During the year, DGX deployed an AI tool at its Clifton lab that helps laboratory staff continuously identify ways to enhance productivity in their daily routines. Base business margins improved, which marks significant progress.
Downsides
Low COVID-19 Testing Revenues Drag the Top Line: Over the past few quarters, revenues from testing volumes have nosedived, plunging 80% in the fourth quarter of 2023. The company’s 2024 outlook indicates a minimum $175 million decline in COVID-19 revenues, partially offsetting the growth from the base business.
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’ 2024 earnings per share (EPS) has moved down from $9.00 to $8.97 in the past 30 days and to $8.95 in the past seven days.
The consensus estimate for the company’s 2024 revenues is pegged at $9.38 billion. This suggests a 1.4% rise from the year-ago reported number.
Haemonetics has an estimated earnings growth rate of 28.4% for fiscal 2024 compared with the industry’s 16.8%. HAE’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 16.1%. Its shares have fallen 8.7% compared with the industry’s 0.6% decline in the past year.
Insulet, sporting a Zacks Rank #1 at present, has a long-term estimated earnings growth rate of 35.7% compared with the industry’s 12.2%. Shares of the company have decreased 33.1% compared with the industry’s 0.6% fall over the past year.
PODD’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 105.1%. In the last reported quarter, it delivered an average earnings surprise of 77.5%.
DaVita, sporting a Zacks Rank #1 at present, has an estimated long-term earnings growth rate of 17.3% compared with the industry’s 11.5%. Shares of DVA have rallied 30.7% compared with the industry’s 5.7% rise over the past year.
DVA’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 36.6%. In the last reported quarter, it delivered an average earnings surprise of 48.4%.
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Reasons to Retain Quest Diagnostics (DGX) Stock for Now
Quest Diagnostics Inc. (DGX - Free Report) is likely to grow in the coming quarters, backed by the strength of its advanced diagnostics offerings. Within the base business, the company made substantial progress in its strategy to drive top-line growth across core customer channels and improve profitability. In addition, DGX delivered the planned Invigorate goal, which is highly appreciated.
However, the significant downturn in COVID-19 testing revenues and a competitive landscape are concerning for the company.
In the past year, this Zacks Rank #3 (Hold) stock has decreased 15.1% compared to the industry’s 5.7% rise and 19.6% growth of the S&P 500 composite.
The renowned provider of diagnostic information services has a market capitalization of $14.05 billion. Quest Diagnostics has an earnings yield of 7.16% compared with the industry’s yield of 3.78%. The company’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 2.13%.
Let’s delve deeper.
Tailwinds
Strong Potential of Advanced Diagnostics: In the fourth quarter of 2023, the company delivered robust growth across multiple clinical areas, including advanced cardiometabolic, prenatal and hereditary genetics and neurology. In addition, Quest Diagnostics bolstered its oncology offering with a strategic investment in higher growth and minimal residual disease (MRD) testing.
In addition, the company announced a collaboration with Universal DX — the developer of Signal-C blood tests for colorectal cancer screening, including precancerous lesions. Through its partnership with Scipher Medicine, Quest Diagnostics is expanding patient access to the PRISM-RA test to help with treatment selection for rheumatoid arthritis.
Image Source: Zacks Investment Research
Growth in Base Business: In 2023, the company’s strong ties with health plans played a crucial role in its growth, resulting in a high-single-digit rise in revenues from health plans compared to the last year. The base business increased nearly 4.7% in the fourth quarter of 2023. The execution of hospital outreach and independent lab acquisitions have generated volume for the company’s physician channel.
Continued progress in the most recent PLS relationships, including Northern Light Health, Lee Health and Tower Health, has been encouraging, two of which the company concluded during the fourth quarter. In addition, the consumer-initiated testing service, questhealth.com, generated revenues of nearly $45 million, along with strong base business growth.
A Strategic Imperative to Drive Operational Excellence: At the end of 2023, DGX’s cost excellence program, Invigorate, delivered its targeted 3% annual cost savings and productivity improvement. In addition, Quest Diagnostics completed front-end automation upgrades in its Pittsburgh and Dallas laboratories, which will improve quality and productivity.
It also expanded the use of AI to improve quality, efficiency and workforce experience in several clinical areas, such as microbiology. During the year, DGX deployed an AI tool at its Clifton lab that helps laboratory staff continuously identify ways to enhance productivity in their daily routines. Base business margins improved, which marks significant progress.
Downsides
Low COVID-19 Testing Revenues Drag the Top Line: Over the past few quarters, revenues from testing volumes have nosedived, plunging 80% in the fourth quarter of 2023. The company’s 2024 outlook indicates a minimum $175 million decline in COVID-19 revenues, partially offsetting the growth from the base business.
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’ 2024 earnings per share (EPS) has moved down from $9.00 to $8.97 in the past 30 days and to $8.95 in the past seven days.
The consensus estimate for the company’s 2024 revenues is pegged at $9.38 billion. This suggests a 1.4% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics (HAE - Free Report) , Insulet (PODD - Free Report) and DaVita (DVA - Free Report) .
Haemonetics has an estimated earnings growth rate of 28.4% for fiscal 2024 compared with the industry’s 16.8%. HAE’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 16.1%. Its shares have fallen 8.7% compared with the industry’s 0.6% decline in the past year.
HAE carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Insulet, sporting a Zacks Rank #1 at present, has a long-term estimated earnings growth rate of 35.7% compared with the industry’s 12.2%. Shares of the company have decreased 33.1% compared with the industry’s 0.6% fall over the past year.
PODD’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 105.1%. In the last reported quarter, it delivered an average earnings surprise of 77.5%.
DaVita, sporting a Zacks Rank #1 at present, has an estimated long-term earnings growth rate of 17.3% compared with the industry’s 11.5%. Shares of DVA have rallied 30.7% compared with the industry’s 5.7% rise over the past year.
DVA’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 36.6%. In the last reported quarter, it delivered an average earnings surprise of 48.4%.