Back to top

Image: Bigstock

Quest Diagnostics: Strong Q3, Strategic Initiatives Add Value

Read MoreHide Full Article

On Dec 27, 2016, we issued an updated research report on Quest Diagnostics, Inc. (DGX - Free Report) , a major commercial laboratory services provider.

Over the past six months, Quest Diagnostics has significantly outperformed the Zacks categorized Medical - Outpatient and Home Healthcare industry with respect to share price movement. The company has gained 19.12% as against 1.98% loss of the broader industry.

The upward movement in shares was further boosted by solid third-quarter 2016 results. While the 2016 outlook fails to align with this bullish trend, we are currently looking forward to the company’s five-point strategy.

Quest Diagnostics has successfully complied with its five-point strategy that focuses on areas with high potential such as gene-based esoteric testing for cancer, cardiovascular disease, infectious disease and neurological disorders.

In the last couple of months, the company has made a number of strategic product launches and forged new partnerships. The latest is the launch of QuestDirect, a new Patient-Initiated Testing service. The other product launches include three new cancer test services that will provide clinically actionable insight into an individual's risk of developing hereditary forms of cancer. These tests will remain part of the company's newly branded Quest Vantage cancer test menu.

Also, the company’s recent partnerships with Safeway and HCA Healthcare are strategic fits.

After suffering through several quarters of low volume environment, the company has finally started to witness improvement in terms of both volume and pricing. However, sustainability of this improvement is still questionable. Further, reimbursement woes remain concerns.

We are also looking forward to the company’s recently formed alliance with HealthONE System of HCA Healthcare (HCA - Free Report) to improve the quality and value of diagnostic services. Per the agreement, Quest Diagnostics will manage in-patient laboratory operations for six Denver-area hospitals in the HealthONE system.

Furthermore, Quest Diagnostics is highly disappointed with the recent CMS proposal related to the Protecting Access to Medicare Act. While CMS' has once again decided to further delay the execution of the new payment system until Jan 1, 2018, Quest Diagnostics is apprehensive about the effect of the final rule, taking into consideration the clinical lab fee schedule representing approximately 12% of its revenues.

Moreover, lower healthcare utilization continues to be a major drag. Although the company has witnessed signs of modest increase in utilization, sustainability is still a concern.

The stock currently carries a Zacks Rank #3 (Hold).

Key Picks

Better-ranked medical stocks include NxStage Medical Inc. and Eagle Pharmaceuticals, Inc. (EGRX - Free Report) . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NxStage Medical gained 14.6% over the last one year compared with the S&P 500’s 11.4%. The company has a four-quarter average positive earnings surprise of 46.3%.

Eagle Pharmaceuticals rallied 17.2% over the last one year, much higher than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 3.7%.

Zacks' Top 10 Stocks for 2017

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?

Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Quest Diagnostics Incorporated (DGX) - free report >>

HCA Healthcare, Inc. (HCA) - free report >>

Eagle Pharmaceuticals, Inc. (EGRX) - free report >>

Published in