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Quest Diagnostics (DGX) Up 1.9% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Quest Diagnostics (DGX - Free Report) . Shares have added about 1.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Quest Diagnostics due for a pullback? 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 catalysts.

Quest Diagnostics Posts Earnings Beat, Revenue Per Requisition Falls in Q3

Quest Diagnostics’ third-quarter 2019 adjusted earnings per share (EPS) of $1.76 surpassed the Zacks Consensus Estimate by 2.3%. Adjusted earnings also improved 4.8% from the year-ago number.

Reported EPS came in at $1.56, up 1.9% from the year-ago quarter as well.

Reported revenues in the third quarter rose 3.5% year over year to $1.96 billion. Moreover, the same beat the consensus estimate by 1%.

Quarterly Details

Volumes (measured by the number of requisitions) expanded 5.1% year over year in the third quarter (up 3.7% organically). However, revenue per requisition dipped 1.2%.

Diagnostic information services revenues in the quarter were up 3.7% on a year-over-year basis to $1.88 billion.

Cost of services during the reported quarter was $1.26 billion, up 3.4% year over year. Gross margin came in at 35.4%, reflecting a 7-basis point (bps) improvement from the year-ago figure.

Selling, general and administrative expenses increased 2.3% to $362 million in the quarter under review. Adjusted operating margin came in at 16.9%, representing a 30-bps expansion year over year.

Quest Diagnostics exited the quarter with cash and cash equivalents of $434 million compared with $273 million at the end of the second quarter.

Year-to-date net cash provided by operating activities was $895 million compared with $905 million a year ago.

In the third quarter, the company repurchased 0.5 million shares of the common stock for $50 million. As of Sep 30, 2019, Quest Diagnostics was left with $0.4 billion of authorization under the approved share buyback plan.

2019 Guidance

Quest Diagnostics has updated its 2019 outlook. Adjusted EPS for the full year is projected within $6.45-$6.50, indicating a restraint from the earlier projection of above $6.40. The Zacks Consensus Estimate for the metric is pegged at $6.50, touching the upper end of the guided band.

Revenues for 2019 are estimated to be around $7.72 billion, near the upper end of the earlier provided guidance of $7.60-$7.75 billion. This indicates 2.5% estimated growth from the year-ago reported figure (earlier expectation was 1 growth). The current Zacks Consensus Estimate for revenues of $7.71 billion falls below the company’s projected range.

Operating cash flow for 2019 is expected at around $1.3 billion (unchanged). The estimated range for capital expenditure is maintained at $350-$400 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Quest Diagnostics has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Quest Diagnostics has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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