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Quest Diagnostics (DGX) Banks on Buyouts, Competition Rife

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On Sep 4, we issued an updated research report on Quest Diagnostics, Inc. (DGX - Free Report) , a major commercial laboratory services provider. The stock currently carries a Zacks Rank #3 (Hold).

Over the last six months, Quest Diagnostics has been trading above the broader industry. As per the last share price movement, the stock has gained 9.9% in contrast to the 5.5% decline of the broader industry over the same time frame.

The company’s earnings in the last reported second quarter exceeded estimates, while revenues lagged the same. The company has witnessed significant growth through infectious disease testing, prescription drug monitoring and wellness business. It is currently refocusing on core diagnostic information services business and disciplined capital deployment. Finally, the raised 2017 guidance indicates chances of continuation of this bullish trend. In addition, alliance with hospitals and integrated delivery networks are other growth drivers. The company is particularly positive about its PeaceHealth acquisition in the Pacific Northwest which is expected to bolster growth in the rest of 2017.

We are also encouraged by the launch of QHerit by Quest Diagnostics in July. The QHerit Pan-Ethnic Expanded Carrier Screen is a panel of tests for the 22 heritable diseases mentioned under new screening guidelines issued in March 2017 by the American College of Gynecology (ACOG). Further, the company has completed its previously announced acquisition of laboratory businesses — Med Fusion and Clear Point.

In late 2016, Quest Diagnostics came up with an upgraded long-term growth outlook (beyond 2017) based on its new and extended two-point strategy to generate shareholders’ value, accelerate growth and drive operational excellence.

However, we are concerned about the tough organic volume scenario. Also, in the last three months, a comparative study of Quest Diagnostic’s forward P/E (F12M basis) multiple reflects that the stock is quite overvalued. A tough competitive landscape and reimbursement headwinds are other concerns.

Key Picks

Some better-ranked medical stocks are Edwards Lifesciences Corporation (EW - Free Report) , Lantheus Holdings, Inc. (LNTH - Free Report) and IDEXX Laboratories, Inc. (IDXX - Free Report) . Edwards Lifesciences sports a Zacks Rank #1 (Strong Buy), while Lantheus Holdings and IDEXX Laboratories carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has rallied roughly 25.9% over the last six months.

Lantheus Holdings has a long-term expected earnings growth rate of 12.5%. The stock has gained 25.8% over the last six months.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock has gained around 5.4% over the last six months.

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