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Quest Diagnostics (DGX) Rides on Test Sales, Base Volume Gain

Zacks Equity Research
·4-min read

Quest Diagnostics, Inc. DGX, as part of its two-point strategy, has been focusing on areas with high potential. The stock currently carries a Zacks Rank #2 (Buy).

Over the past year, Quest Diagnostics has outperformed its industry. The stock has gained 29.8% against a 17.9% decline of the industry.

Quest Diagnostics reported better-than-expected third-quarter 2021 adjusted earnings and revenues. Base business continued to deliver solid volume growth compared to 2019. A temporary softness in base business in summer got rebounded in September.

Quest Diagnostics noted that its base business continued to improve sequentially in the third quarter, signifying the ongoing recovery trend of the industry. In COVID-19 testing, molecular diagnostic testing volumes increased sequentially in the third quarter, driven by the massive spread of the Delta variant over the course of the summer. Testing began to increase meaningfully in mid-July and peaked in early-to-mid-September.

After raising its full-year projection in September, Quest Diagnostics further increased the same on its third-quarter earnings call. The latest increase in guidance for the remainder of the year is based on higher-than-anticipated COVID-19 volumes as well as the continued rebound in base business despite rising labor costs and inflationary pressure. According to the company, the growing momentum of the base business positions it to deliver a strong 2022 outlook that the company announced at its March 2021 investor day.

Quest Diagnostics Incorporated Price

Quest Diagnostics Incorporated Price
Quest Diagnostics Incorporated Price

Quest Diagnostics Incorporated price | Quest Diagnostics Incorporated Quote

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In terms of the Protecting Access to Medicare Act (PAMA), the company earlier noted that it is optimistic about the recent MedPAC report mandated under the LAB Act. This MedPAC report found it feasible to change the CMS data collection process to a statistically valid sample of private payer rates for independent labs, hospital labs and physician office labs.

On the flip side, in the third quarter of 2021, Quest Diagnostics reported a year-over-year decline in revenues and adjusted earnings due to an unfavorable comparison with a very strong year-ago quarter. The company also noted that in late summer it experienced some softness in the base business across the country partially caused by the rise of the Delta variant and the timing of summer vacations.

The year-over-year contraction in margins is also concerning. The gross margin was 39.8% in the reported quarter, reflecting a 349 basis points (bps) contraction from the year-ago figure. Adjusted operating margin of 24.4% represented a 467-bps contraction year over year.

Other Key Picks

Some other top-ranked stocks from the Medical-Products industry include Apollo Endosurgery, Inc. APEN, Cerner Corporation CERN and West Pharmaceutical Services, Inc. WST, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apollo Endosurgery has a long-term earnings growth rate of 7%. The company‘s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, delivering a surprise of 25.6%, on average.

Apollo Endosurgery has outperformed its industry in the past year. APEN has gained 132.2% compared with the industry’s 12.6% growth.

Cerner has a long-term earnings growth rate of 13.3%. The company’s earnings surpassed estimates in three of the last four quarters and met estimates in one. Cerner has a trailing four-quarter earnings surprise of 3.2%, on average.

Cerner has outperformed its industry in the past year. CERN has gained 19.5% against the industry’s 38.2% decline.

West Pharmaceutical has a long-term earnings growth rate of 27.6%. The company’s earnings surpassed estimates in the trailing four quarters, delivering an average surprise of 29.4%.

West Pharmaceutical has outperformed its industry in the past year. WST has rallied 64.2% compared with the industry’s 17.1% rise.


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