Quest Diagnostics Incorporated DGX has been gaining as the company’s base business continues to improve sequentially, signifying industry-wide recovery. The company has raised its 2021 view based on higher-than-anticipated COVID-19 volumes, which buoys optimism. However, market headwinds and stiff competition remain concerns.
In the past year, shares of this Zacks Rank #2 (Buy) company have gained 10.9% against the 50.1% decline of the industry.
The largest provider of commercial laboratory services in North America has a market cap of $16.83 billion. The company surpassed estimates in the trailing three quarters and missed the same in one, the average surprise being 12.25%.
Let us delve deeper.
Base Volume Improves: Quest Diagnostics’ base testing volumes or base business refers to testing volumes, excluding COVID-19 testing. In the third quarter, despite COVID-19 resurgence, the base business registered sequential growth. The company noted that base business volumes rebounded in September following a modest softening in August, partially caused by the rise of the Delta variant and the timing of summer vacations. Base Diagnostic Information Services revenues grew approximately 6% in the third quarter (up nearly 2% excluding acquisitions).
COVID-19 Test Demand Regains: In the third quarter of 2021, COVID-19 testing volumes increased sequentially on a massive spread of the Delta variant throughout summer. This was in line with the broader COVID-19 testing trends across the country. Quest Diagnostics reported approximately 7.6 million molecular tests and nearly 700,000 serology tests in the third quarter. Testing began to increase meaningfully in mid-July and peaked in early-mid September. The positivity rate peaked in mid-August and has steadily been declining across most parts of the country in recent weeks. The company performed an average of 83,000 COVID-19 molecular tests in the third quarter and maintained strong average turnaround times of approximately one day for most specimens throughout the surge.
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Upbeat Guidance: After raising its full-year projection in September, Quest Diagnostics further increased the same on its third-quarter earnings call.
Full-year net revenues are currently estimated in the range of $10.45-$10.60 billion, up from the earlier band of $9.84-$10.09 billion, indicating an improvement of 10.7-12.3% (earlier growth expectation was 4.3-6.9%) from 2020. The adjusted earnings per share guidance has been raised to $13.50-$13.90 from the previous projection of $11.65-$12.35.
Current Market Headwinds Weigh Heavily on the Stock: The current market environment remains challenging for Quest Diagnostics due to a persistent decline in healthcare utilization rate, softer volume, commercial pricing pressure and reimbursement headwind.
Competitive Landscape: Quest Diagnostics faces intense competition, primarily from Laboratory Corporation of America, other commercial laboratories and hospitals. Hospitals control an estimated 60% of the diagnostic test market compared with Quest Diagnostics’ 15% share.
Quest Diagnostics is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 2.6% north to $14.22.
The Zacks Consensus Estimate for 2021 revenues is pegged at $10.59 billion, suggesting 12.3% growth from the year-ago reported number.
Other Key Picks
A few other top-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. AMN, Henry Schein, Inc. HSIC and West Pharmaceutical Services, Inc. WST.
AMN Healthcare, carrying a Zacks Rank #2, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has outperformed its industry over the past year. AMN has gained 27.5% versus the 62.2% industry decline.
Henry Schein has an estimated long-term growth rate of 11.8%. Henry Schein’s earnings surpassed estimates in the trailing four quarters, the average surprise being 21.86%. It currently carries a Zacks Rank #2.
Henry Schein has gained 5.2% compared with the industry’s 1.2% rise over the past year.
West Pharmaceutical has a long-term earnings growth rate of 27.6%. West Pharmaceutical surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 29.4%.
West Pharmaceutical has outperformed its industry over the past year. WST currently carries a Zacks Rank of 2.
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Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report
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