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DGX Ups Low-End of 2013 EPS, Restates Revs

Zacks Equity Research

On the heels of Laboratory Corporation of America Holdings’ (LH) release of a bleak 2014 preliminary outlook, peer Quest Diagnostics (DGX) came up with an updated full-year 2013 revenues and adjusted earnings per share (EPS) guidance.

Currently, Quest Diagnostics expects 2014 revenues to be down 3.5% from the prior-year (unchanged from earlier projection). The revised Zacks Consensus Estimate of $7.12 billion reflects a decline of 3.5%, and hence remains in line with the guided range.

However, the company raised the lower-end of its full year adjusted EPS expectation to the range of $3.90−$3.95 (earlier band was $3.85−$3.95). The current Zacks Consensus Estimate of $3.91 falls near the lower end of the range.

Earlier, along with its third-quarter earnings release, the company had declared its cash provided by operations outlook which was reduced to $850 million from the earlier projected $1.0 billion. However, the company did not alter its estimate for capital expenditure ($250 million).

Quest Diagnostics expects to report the full-year 2014 guidance along with its fourth-quarter 2013 results which are slated to release in January.

The current market environment continues to remain challenging for Quest Diagnostics in the form of continued decline in healthcare utilization rate, softer volume, commercial pricing pressure and reimbursement headwind.

In 2013, reimbursement challenges have become much more pronounced with a 5% reduction in Medicare payments; cuts to pathology codes on Medicare physician fee schedule; changes to Medicare fee schedules, including requirements from molecular diagnostics; and the effects of renewed commercial payer contracts. All these factors led to the lowering of underlying revenue per requisition by 3.3% in the third quarter of 2013.

The company apprehends reduction in revenue per requisition to a similar extent for full year 2013. Moreover, Quest Diagnostics expects price erosion to exceed $200 million in 2013.

Quest Diagnostics currently carries a Zacks Rank #5 (Strong Hold). However, investors interested in the industry may consider stocks like Align Technology Inc. (ALGN) and McKesson Corp. (MCK). Both these stocks sport a Zacks Rank #1 (Strong Buy).

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