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Here's Why You Should Hold on to Quest Diagnostics Stock Now

Zacks Equity Research

Quest Diagnostics, Inc. DGX is progressing well with its two-point strategy of restoring growth and driving operational excellence. However, a tough competitive landscape and reimbursement headwinds are likely to offset the positives.

In the past three months, the company’s shares have outperformed the industry. The stock has rallied 0.3% against the industry’s 28.1% decline.

This $14.14-billion pharmacy innovation company’s earnings are expected to grow 7.6% in the next five years. Also, the company has a trailing-four quarter positive earnings surprise of 1.9%, on average.

Let’s delve deeper into the factors that substantiate the company’s Zacks Rank #3 (Hold).

Focus on Growth Acceleration: Earlier 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. This transaction is likely to garner favorable results through the rest of 2019. Moreover, the company has been witnessing growth in prescription drug monitoring, QuantiFERON, tuberculosis test, T-SPOT, Cardio IQ and STD testing.

Successful Cost-Cutting Initiatives: In terms of the company’s efforts to ramp up operational efficiency, Quest Diagnostics’ Invigorate cost-cutting initiatives have been successful and the company is working on tapping more opportunities ahead. At the end of the third quarter, the company noted that it is on track to deliver 3% cost efficiencies for 2019 led by continuous increase in productivity.

Strategic Collaborations: We are upbeat about the expanded long-term partnership with UnitedHealthcare, a business of UnitedHealth Group, to operate as a preferred national laboratory for all of the company’s members. Also, the recent partnerships with Catholic Health Services, an integrated health care delivery system (to provide laboratory and supply chain expertise as well as perform laboratory reference testing), and hc1, a bioinformatics player in precision testing, are expected to continue driving growth for Quest Diagnostics.

However, there are a few factors marring growth for the company.

Market Headwinds: The current market environment is quite challenging for Quest Diagnostics in the form of continued decline in healthcare utilization rate, softer volume, commercial pricing pressure and reimbursement.

Competitive Landscape: Quest Diagnostics continues to face intense competition, primarily from Laboratory Corporation of America, IDEXX Laboratories and Sonic Healthcare.

Which Way Are Estimates Treading?

For the fourth quarter of 2019, the Zacks Consensus Estimate for earnings is pegged at $1.60, which indicates 17.7% rise from the year-ago quarter’s figure. The same for revenues is pegged at $1.92 billion, calling for year-over-year growth of 4.3% from the prior-year quarter’s number.

The Zacks Consensus Estimate for 2019 earnings is pegged at $6.49, suggesting 2.9% year-over-year growth from the year-ago figure. The same for revenues is pegged at $7.72 billion, suggesting 2.5% rise from the prior-year number.

Stocks Worth a Look

A few better-ranked stocks from the broader medical space are Haemonetics Corporation HAE, NuVasive, Inc NUVA and ResMed RMD. While ResMed carries a Zacks Rank #1 (Strong Buy), the other two carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Haemonetics has a projected long-term earnings growth rate of 13.5%.

NuVasive has an expected long-term earnings growth rate of 10.9%.

ResMed has a long-term earnings growth rate of 12.9%.

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Haemonetics Corporation (HAE) : Free Stock Analysis Report
 
NuVasive, Inc. (NUVA) : Free Stock Analysis Report
 
ResMed Inc. (RMD) : Free Stock Analysis Report
 
Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report
 
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