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Quest Diagnostic (DGX) Raises View on COVID-19 Testing Surge

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Quest Diagnostics DGX, which initiated a dull 2021 outlook one-and-a-half month back, recently came out with a significant rise in its full-year projection. Subsequent to the massive drop in the COVID-19 testing volume through the summer months, the company tracked the industry-wide trend of anticipating a dull performance in 2021. However, the recent surge in the new COVID-19 case counts on the emergence of the delta variant has acted as a game changer.

More specifically, Quest Diagnostics noted that since its second-quarter earnings release on Jul 22, the COVID-19 molecular testing volumes were stronger than anticipated through the end of August on the Delta variant spike. Going by the current situation of the daily increase in case count, Quest Diagnostics expects this trend to continue through the rest of the year.

The Updated Outlook

The full-year net revenues are currently estimated in the range of $9.84-$10.09 billion, up from the earlier band of $9.54-$9.79 billion, indicating an improvement of 4.3-6.9% (earlier growth expectation was 1.1-3.7%) from 2020. The Zacks Consensus Estimate of $9.71 billion falls below the guided range.

The adjusted earnings per share (EPS) too has been raised to the range of $11.65-$12.35 from the previous projection of $10.65-$11.35. The Zacks Consensus Estimate of earnings of $11.37 per share also remains below the updated guidance.

The operating cash flow is predicted to be $2 billion now compared to the $1.9 billion projected earlier. The capital expenditure guidance for the full year, however, remains unchanged at $400 million.

Bottom Line

The COVID-19 testing volumes for Quest Diagnostics declined in the second quarter, in line with the broader trends across the industry. During the June-end quarter, the company performed an average of 57,000 COVID-19 molecular tests, well below its current capacity of approximately 300,000 tests per day. In view of this and expecting a further decline in clinical demand for the COVID-19 molecular testing throughout the back half of 2021, the company released a lackluster guidance that time.

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Zacks Investment Research

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With the recent improvement in the testing demand, the lower end of the company's updated outlook now assumes average COVID-19 volumes of at least 40,000 molecular tests per day for the remaining period of this year. The guidance, while showing a significant upward revision, also exceeds estimates in both lines.

However, the company noted that the organic testing volumes in its base business (excluding COVID-19 molecular and antibody testing, and the impact of recent acquisitions) remain consistent with its previous outlook.

Share Price Performance

Shares of the company have gained 42.6% in a year’s time as against the industry’s 23.7% slump.

Zacks Rank and Key Picks

Currently, Quest Diagnostics carries a Zacks Rank #3 (Hold).

Better-ranked stocks from the broader Medical space include VAREX IMAGING VREX, Envista Holdings Corporation NVST and BellRing Brands, Inc. BRBR.

VAREX, sporting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Envista Holdings, with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 27.4%.

BellRing Brands, carrying a Zacks Rank #2, has a long-term earnings growth rate of 29.1%.

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Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report

VAREX IMAGING (VREX) : Free Stock Analysis Report

Envista Holdings Corporation (NVST) : Free Stock Analysis Report

BellRing Brands, Inc. (BRBR) : Free Stock Analysis Report

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