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Will New Alliances Aid Quest Diagnostics (DGX) Q3 Earnings?

Zacks Equity Research

Quest Diagnostics Incorporated DGX is scheduled to report third-quarter 2019 earnings on Oct 22, before the opening bell.

The Zacks Consensus Estimate for third-quarter earnings of $1.72 implies a 2.38% rise from the year-ago reported figure.

In the last reported quarter, the company’s earnings exceeded the Zacks Consensus Estimate by 2.37%, the average trailing four-quarter positive surprise being 1.33%.

Let’s take a look at how things are shaping up prior to this announcement.

Factors Likely to Influence Third-Quarter Results

Quest Diagnostics seems well-aligned with its two-pronged agenda to accelerate growth and drive operational excellence. Per the company, its frequently growing partnerships with other health care leaders and prudent buyouts are creating promising opportunities for the top and the bottom line while at the same time, the patient experience is improved and the overall cost of care, reduced.

As an evidence, the company satisfied all the five elements of its growth acceleration strategy through the last few quarters. Therefore, we strongly expect this momentum to most likely reflect on the upcoming quarterly results.

Quest Diagnostics Incorporated Price and EPS Surprise

Quest Diagnostics Incorporated Price and EPS Surprise

Quest Diagnostics Incorporated price-eps-surprise | Quest Diagnostics Incorporated Quote

Going by the first element of its growth strategy (to further strengthen the top line by 2% via strategically accretive acquisitions) so far in 2019, the company completed the purchase of a clinical laboratory services business of Boyce and Bynum, a provider of diagnostic and clinical laboratory services in the Midwest. We expect to see this transaction leave a positive impact on the to-be-reported results.

Considering the second element of Quest Diagnostics’ key growth plans, which is to expand relationships with hospital health systems, it is executing this strategy quite successfully. The company’s top-line number is expected to reflect the impact of its recent partnerships with Catholic Health Services (CHS), an integrated health care delivery system, and hc1, a bioinformatics player in precision testing, in the impending quarterly release.

With respect to the third element of offering its diagnostic innovation a wider access, the company has been witnessing growth in prescription drug monitoring, QuantiFERON, tuberculosis test, T-SPOT, Cardio IQ and mutual testing. Per the company, the recently-inked consolidation deals are predicted to upgrade its capabilities in advanced diagnostics, especially in the areas of Women’s Health and Infectious Disease. These new developments are expected to have contributed to the company’s third-quarter top line.

About the fourth element of the company’s growth strategy, which is to provide ample choices to consumers, the company’s relationship with Walmart has already started adding value to this end with higher patient traffic. Moreover, the company’s alliance with Safeway currently has more than 200 patient service centers across its retail store locations. This positive aspect is likely to reflect on the third-quarter earnings performance of Quest Diagnostics.

The fifth element of Quest Diagnostics’ growth policies indicates its support to population health within analytics and extended care services. In this regard, the company recently launched Quest Clinical Trial Connect, a patient recruitment service.

Apart from these five elements, in terms of Quest Diagnostics’ efforts to ramp up its operating efficiency, it endeavors to scale up productivity. This, in turn, enabled the company to effectively manage headcount growth.

We expect these key active catalysts to replicate the company’s success story in its impending quarterly results. Also, a better-than-expected performance is likely to perk up the same primary metrics in the third quarter alike the preceding ones.

We strongly believe that all these recent developments might have significantly favored the company’s top line in the third quarter.

On the flip side, Quest Diagnostics is suffering a significant PAMA-driven reimbursement pressure that remains a major headwind to structural changes in the marketplace. In the first half of 2019, Medicare rates were down by 10% from the prior year. This is expected to affect the company’s business through the second half as well. In fact, this should get reflected in third-quarter results only.

The Zacks Consensus Estimate for third-quarter earnings of $1.72 implies a 2.38% rise from the year-ago reported figure.

What Our Model Suggests

The proven Zacks does not conclusively predict an earnings beat for Quest Diagnostics this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of beating estimates. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Quest Diagnostics has a Zacks Rank #4 (Sell) and an Earnings ESP of -0.51%.

Stocks Worth a Look

Here are a few medical stocks worth considering from the same space with the right mix of elements to surpass expectations this time around.

Akcea Therapeutics, Inc. AKCA has an Earnings ESP of +18.18% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Vertex Pharmaceuticals Incorporated VRTX has an Earnings ESP of +1.97% and a Zacks Rank of 1.

DENTSPLY SIRONA Inc. XRAY has an Earnings ESP of +5.50% and a Zacks Rank #3.

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