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Quest Diagnostics (DGX) Base Arm Recovers, Testing Sales Grow

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·4 min read
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  • DGX
  • TMO
  • QDEL
  • LH

Following a dull second-quarter performance in terms of COVID-19 testing, Quest Diagnostics DGX is likely to come up with strong third-quarter results, courtesy of the sudden spike in new coronavirus cases due to the emergence of the more lethal Delta variant. Meanwhile, the company’s base business is also rebounding well, banking on the gradual opening up of the economy.

Let us delve deeper.

COVID-19 Test Demand Recovers in Q3 Months

In the second quarter of 2021, demand for COVID-19 testing slowed down  as expected, reflecting an industry-wide trend. However, per the company’s last update, in the last few weeks of June, demand stabilized and started to increase modestly, which the company believes was attributable to some extent to the emergence of the Delta variant. Since the middle of July, the company has seen stabilization and a modest increase in PCR volumes. Positivity rates have increased in all geographies served by the company’s performing lab in this period.

The company is also hopeful about the fact that COVID-19 testing remains critical as employees are gradually returning to the workplace and students to the classroom.

Full-Year Outlook Upgraded

Accordingly, in September, the company, which initiated a dull 2021 outlook during the second-quarter earnings release, came out with a significant rise in its full-year projection. Quest Diagnostics noted that from its second-quarter earnings release on Jul 22, 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.

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 adjusted earnings per share guidance too was raised to the range of $11.65-$12.35 from the previous projection of $10.65-$11.35.

Base Business Recovery Continues

Quest Diagnostics’ base testing volumes or base business refers to testing volumes, excluding COVID-19 testing. In the last-reported second quarter, the base business registered a faster-than-expected recovery. This was the first quarter since 2019 in which organic base testing revenues grew driven by contributions from new hospital lab management contracts, as well as people returning to the healthcare system. In June, organic base testing revenues essentially returned to the pre-pandemic levels. More specifically, the company registered a strong recovery in most parts of the country and a slower recovery in the Northeast.

Competitive Niche

Quest Diagnostics is not the only company expected to release strong third-quarter numbers this time around. In September, the President released a mandate asking federal employees to ensure vaccination, and large and small private sector businesses to get their staff fully vaccinated and regularly tested. This certainly bodes well for all COVID-19 testing makers.

The company’s peers like Quidel Corporation QDEL, LabCorp LH and Thermo Fisher Scientific TMO are currently gaining traction in terms of their COVID-19 testing businesses.

In September 2021, Quidel announced that it will make the non-prescription QuickVue At-Home OTC COVID-19 test available to consumers at more than 7,000 CVS Pharmacy locations across the United States and online at cvs.com. The company recently witnessed a surge in demand for the portfolio of Sofia SARS and QuickVue COVID-19 rapid antigen tests. Making rapid antigen tests available through CVS Pharmacy will help Quidel address demand.

Till the end of the second quarter, LabCorp performed more than 50 million tests. In the second quarter, a steady decline in positive cases led to an overall drop in COVID-19 testing. However, following the rise in demand later, the company announced expanded availability of its Pixel by Labcorp COVID-19 PCR Test Home Collection Kits at 6,000 Walgreens stores nationwide and through Walgreens’ collaborations with on-demand delivery services like DoorDash and Instacart.

Considering the need for the reopening of schools, colleges and offices amid the active spread of coronavirus and its more contagious variants, Thermo Fisher recently launched a wastewater isolation kit for SARS-CoV-2 surveillance called MagMAX Wastewater Ultra Nucleic Acid Isolation Kit. This kit is expected to help contain the regional and community spread of the COVID-19 virus.

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