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Why Is Quest Diagnostics (DGX) Down 3.9% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Quest Diagnostics Incorporated (DGX - Free Report) . Shares have lost about 3.9% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Quest Diagnostics Tops Q2 Earnings, Raises '17 View

Quest Diagnostics second-quarter 2017 adjusted earnings per share (EPS) of $1.55 beat the Zacks Consensus Estimate by 9.93% and the year-ago number by 15.7%.

Adjusted EPS in the reported quarter excluded charges related to restructuring and integration, retirement of debt as well as amortization expenses. The reported EPS came in at $1.37, in line with the year-ago figure.

Reported revenues in the second quarter inched up 1.9% year over year to $1.94 billion. However, it lagged the Zacks Consensus Estimate of $1.95 billion. According to the company, the year-over-year improvement came on the back of extended tie-ups with hospital health systems and strength in several of the company’s advanced diagnostic offerings.

Volume (measured by the number of requisitions) increased 1.8% year over year in the second quarter. Also, revenue per requisition increased 0.7%. Diagnostic information services revenues in the quarter rose 2.5% on a year-over-year basis to $1.86 billion.

Cost of services during the reported quarter was $1.17 billion, up 1.3% year over year. Gross margin came in at 39.8%, reflecting a rise of 40 basis points (bps) year over year.

Among the operating expenses, selling, general and administrative expenses increased 1.6% to $437 million in the reported quarter. Adjusted operating margin showed an improvement of 50 bps to 17.3%.

Quest Diagnostics exited the second quarter with cash and cash equivalents of $314 million, which marked a 14.4% fall from the preceding quarter. Year-to-date net cash provided by operating activities was $490 million, compared with $464 million in the year-ago period.

In the second quarter, the company repurchased 1.4 million shares for $150 million. As of Jun 30, 2017, Quest Diagnostics was left with $1.1 billion of authorization under the previous share repurchase plan.

Outlook

Quest Diagnostics raised its full-year 2017 revenue guidance. The company now expects full-year revenues in the range of $7.69 billion to $7.74 billion (annualized growth of 2.6–3.4%) from the earlier stated range of $7.64 billion to $7.72 billion (annualized growth of 2–3%). The current Zacks Consensus Estimate for revenues is pegged at $7.69 billion, on par with the lower end of the company’s updated guided range.

In addition, the company’s 2017 adjusted EPS range has been raised to $5.62–$5.72 from the earlier forecast of $5.45–$5.60. The Zacks Consensus Estimate of $5.56 is below this range.

Operating cash flow for 2017 is expected at around $1.2 billion, above the previous guidance of $1.1 billion. The current estimates for capital expenditure are pegged at $250–$300 million (unchanged).

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.

Quest Diagnostics Incorporated Price and Consensus

 

VGM Scores

At this time, the stock has a nice Growth Score of B, while Momentum is lagging a bit with a C grade with the same score on the momentum front. The stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value and growth investors than momentum investors.

Outlook

While estimates have been moving upward, the magnitude of the revision is net zero. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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