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Here's Why You Should Retain Quest Diagnostics (DGX) Stock Now

Quest Diagnostics Incorporated DGX has been gaining from strong year-over-year growth in the base business, signifying industry-wide recovery. The company has raised its 2022 view, which buoys optimism. However, market headwinds and stiff competition remain concerning.

In the past year, shares of this Zacks Rank #3 (Hold) company have gained 5.6% against the 45.9% decline of the industry and the 3.6% slip of the S&P 500.

The largest provider of commercial laboratory services in North America has a market cap of $15.99 billion. The company surpassed estimates in the trailing three quarters and missed the same once, the average surprise being 13.66%.

Let us delve deeper.

Key Growth Catalysts

Base Volume Improves: Quest Diagnostics’ base testing volumes or base business refers to testing volumes, excluding COVID-19 testing. The company’s legacy base business grew more than 6.3% in the first quarter of 2022. The company noted that, in the first quarter, it continued to make inroads with its health plans, gaining share and increasing revenues faster than the market. Quest Diagnostics’ health plan revenues, without COVID-19, grew faster than its overall base business performance in the first quarter.

COVID-19 Test Demand to Remain: COVID-19 testing revenues were significantly down in the first quarter. However, Quest Diagnostics noted that nearly 60% of the COVID-19 revenues came from the Omicron peak in January. The company expects continued demand for PCR testing through the end of 2022 and into 2023, albeit at lower levels. The public health emergency was extended into July, maintaining the company’s current level of reimbursement. Based on these factors, it raised its COVID-19 revenue guidance for 2022 to between $850 million and $1 billion.

 

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Zacks Investment Research

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Guidance Raised: The company raised its 2022 guidance. Full-year net revenues are estimated to be $9.20-$9.50 billion (increasing the low end of the earlier mentioned $9.00-$9.50). The Zacks Consensus Estimate for the same is pegged at $9.31 billion.
Adjusted earnings per share are expected to be $9.00-$9.50 ( compared with the earlier stated $8.65-$9.35). The Zacks Consensus Estimate for the metric is pegged at $9.01.

Downsides

Competitive Landscape: Quest Diagnostics faces intense competition primarily from LabCorp, other commercial laboratories and hospitals. Hospitals control an estimated 60% of the diagnostic test market compared with Quest Diagnostic’s 15% share.

While pricing is an important factor in choosing a testing lab, hospital-affiliated physicians expect a high level of service, including the accurate and rapid turnaround of testing results. As a result, Quest Diagnostics and other commercial labs compete with hospital-affiliated labs primarily on the basis of the quality of service.

Current Market Headwinds Weigh Heavy: The current market environment remains challenging for Quest Diagnostics due to a persistent decline in healthcare utilization rate, softer volume, commercial pricing pressure and reimbursement headwind.

Estimate Trend

Quest Diagnostics is witnessing a positive estimate revision trend for the current year. In the past 60 days, the Zacks Consensus Estimate for its earnings has moved 1.8% north to $9.31.

The Zacks Consensus Estimate for 2022 revenues is pegged at $9.26 billion, suggesting a 14.2% decline from the year-ago reported number.

Key Picks

A few better-ranked stocks in the broader medical space are UnitedHealth Group Incorporated UNH, Medpace Holdings, Inc. MEDP and Alkermes plc ALKS.

UnitedHealth, having a Zacks Rank #2 (Buy), reported first-quarter 2022 earnings per share (EPS) of $5.49, which beat the Zacks Consensus Estimate by 1.7%. Revenues of $80.1 billion outpaced the consensus mark by 14.2%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

UnitedHealth has an estimated long-term growth rate of 14.8%. UNH’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%.

Medpace reported first-quarter 2022 adjusted EPS of $1.69, which surpassed the Zacks Consensus Estimate by 34.1%. Revenues of $330.9 million outpaced the Zacks Consensus Estimate by 1.1%. It currently has a Zacks Rank #2.

Medpace has a historical growth rate of 27.3%. MEDP’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%.

Alkermes reported first-quarter 2022 adjusted EPS of 12 cents, which surpassed the Zacks Consensus Estimate of a penny. Revenues of $278.6 million outpaced the Zacks Consensus Estimate by 6.2%. It currently carries a Zacks Rank #2.

Alkermes has an estimated long-term growth rate of 25.1%. ALKS’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%.


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