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Why Is Quest Diagnostics (DGX) Up 12.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Quest Diagnostics (DGX - Free Report) . Shares have added about 12.3% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Quest Diagnostics Posts Earnings Beat, Volume Down in Q1

Quest Diagnostics’s first-quarter 2020 adjusted earnings per share of 94 cents surpassed the Zacks Consensus Estimate by 13.3%. Adjusted earnings declined 32.9% from the year-ago number.

Certain one-time expenses, like the ones related to the COVID-19 pandemic and their resultant impact including certain asset impairment charges; as well as incremental costs incurred to protect the health and safety of employees and customers and to transition certain employees to a remote work environment, were excluded from the quarter’s adjusted figures.

GAAP earnings from continuing operations came in at 73 cents per share, marking a 39.2% decline from the year-ago quarter.
Reported revenues in the first quarter declined 3.7% year over year to $1.82 billion. The same beat the consensus estimate by 4.6%.

Quarterly Details

Volumes (measured by the number of requisitions) declined 2.4% year over year in the first quarter (down 2.7% organically). Revenue per requisition also inched down 1.2% year over year.

Diagnostic information services revenues in the quarter were down 3.8% on a year-over-year basis to $1.74 billion.

Margins

Cost of services during the reported quarter was $1.27 billion, up 2.1% year over year. Gross margin came in at 30.3%, reflecting contraction of 392 basis points (bps) from the year-ago figure.

Adjusted operating margin of 11.3% represented a 266-bps contraction year over year. Selling, general and administrative expenses declined 9.6% to $347 million in the quarter under review.

Cash, Capital Structure and Solvency

Quest Diagnostics exited the first quarter of 2020 with cash and cash equivalents of $342 million compared with $1.19 billion at the end of 2019. First-quarter net cash provided by operating activities was $247 million compared with $275 million a year ago.

For the three months ended Mar 31, 2020, the company repurchased 0.7 million shares of its common stock for $75 million but suspended additional share repurchases through the end of the year under its existing authorization.

The company's board of directors remains committed to its quarterly dividend at this time.

Withdraws 2020 Guidance

Given the rapidly-changing uncertainties and likely outcomes of coronavirus, Quest Diagnostics is currently unable to gauge the near-term impact on its business. The company looks to announce its updated outlook at an ‘appropriate time’.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted 18.29% due to these changes.

VGM Scores

Currently, Quest Diagnostics has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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

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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