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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.

In the past three months, the company’s shares have outperformed the industry. The stock has rallied 3.7% against the industry’s 2.3% decline.

This leading provider of commercial laboratory services in North America has a market cap of $14.21 billion. The company has an expected earnings growth rate of 7.4% for the next three to five years.

Courtesy of impressive prospects, this Zacks Rank #3 (Hold) stock is worth retaining at the moment.

Focus on Growth Acceleration: Through the second quarter, QuestDirect consumer testing business has been gaining popularity. Recently, the company launched a consumer initiative for Lyme disease tests. This is expected to enhance the consume base of the company, thereby contributing to its top line during the third quarter.


Operational Excellence a Goal: The company’s Invigorate cost-cutting initiatives have been successful so far. At the end of the second quarter, the company noted that it is on track to deliver 3% cost efficiencies in 2019 led by a continuous ramp-up in productivity.This trend should continue through the third quarter as well, improving the company’s operating margin.

Strategic Collaboration: We are currently looking forward to Quest Diagnostics’ recently-formed partnership with hc1 to launch Quest Lab Stewardship that should enable the optimization of laboratory tests. Starting from the third quarter, this should have contributed to the company’s organic growth.

Strong Guidance: Similar to the first half of the year, the company expects strong revenue growth from increasing volumes in the rest of 2019. Further, one extra revenue day in the third quarter should contribute to the company’s third-quarter top line. We are also impressed about the company expecting to maintain earnings growth through the rest of 2019.

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

Market Headwinds Weigh Heavy: 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, among others.

Which Way Are Estimates Treading?

For the third quarter of 2019, the Zacks Consensus Estimate for earnings is pegged at $1.71, which indicates 1.8% rise from the year-ago quarter’s figure. The same for revenues is pegged at $1.94 billion, calling for year-over-year growth of 2.8% from the prior-year quarter’s number.

The Zacks Consensus Estimate for 2019 earnings is pegged at $6.50, suggesting 3.01% year-over-year growth from the year-ago figure. The same for revenues is pegged at $7.71 billion, suggesting 2.4% rise from the prior-year number.

Key Picks

A few better-ranked stocks in the broader medical space are Styker SYK, Medtronic MDT and Haemonetics HAE. While Haemonetics carries a Zacks Rank #1 (Strong Buy) , the other two each carry a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank  stocks here.

Stryker’s long-term earnings growth rate is expected to be 10.04%.

Medtronic’s long-term earnings growth rate is projected at 7.32%.

Haemonetics’ long-term earnings growth rate is expected to be 13.5%.

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