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Quest Diagnostics (DGX) Q4 Earnings Beat, Margins Strong

Zacks Equity Research

Quest Diagnostics Incorporated’s DGX fourth-quarter 2019 adjusted earnings per share (EPS) of $1.67 surpassed the Zacks Consensus Estimate by 4.4%. Adjusted earnings also improved 23.7% from the year-ago number. The impact of certain one-time items, such as restructuring and integration charges plus amortization expenses, was excluded from both the quarters’ adjusted figures.

GAAP EPS from continuing operations came in at $1.86, skyrocketing 101.2% from the year-ago quarter.

For the full year, adjusted earnings of $6.56 per share came ahead of the Zacks Consensus Estimate by 1.1% and also rose 3.9% from the year-ago figure. The figure exceeded the company’s projected range of $6.45-$6.50 as well.

Reported revenues in the fourth quarter rose 4.7% year over year to $1.93 billion. The same beat the consensus estimate of $1.92 billion.

Quest Diagnostics Incorporated Price, Consensus and EPS Surprise

Quest Diagnostics Incorporated Price, Consensus and EPS Surprise
Quest Diagnostics Incorporated Price, Consensus and EPS Surprise

Quest Diagnostics Incorporated price-consensus-eps-surprise-chart | Quest Diagnostics Incorporated Quote

Full-year revenues of $7.73 billion topped the Zacks Consensus Estimate of $7.72 billion and improved 2.6% from the 2018-level too. This also edged past the company’s expected revenues of $7.72 billion.

Quarterly Details

Volumes (measured by the number of requisitions) expanded 4.1% year over year in the fourth quarter (up 3.4% organically). Revenue per requisition also inched up 1.2% year over year.

Diagnostic information services revenues in the quarter were up 5.1% on a year-over-year basis to $1.84 billion.

Cost of services during the reported quarter was $1.26 billion, up 2.3% year over year. Gross margin came in at 34.4%, reflecting 153-basis point (bps) growth from the year-ago figure.

Selling, general and administrative expenses dipped 1.9% to $349 million in the quarter under review. Adjusted operating margin of 16.3% represented a 277-bps expansion year over year.

Quest Diagnostics exited 2019 with cash and cash equivalents of $1.19 billion compared with $135 million at the end of 2018. Full-year net cash provided by operating activities was $1.24 billion compared with $1.2 billion a year ago.

In the fourth quarter,the board of directors authorized a 5.7% hike in the company’s quarterly dividend to 56 cents per share or $2.24 annually (payable Apr 21, 2020).

The company also increased its share repurchase authorization by $1 billion, bringing the total buyback available to $1.2 billion as of Dec 31, 2019.

2020 Guidance

Quest Diagnostics provided its 2020 outlook. Adjusted EPS for the full year is predicted to be more than $6.60. The Zacks Consensus Estimate for the metric is pegged at $6.73.

Revenues for 2020 are estimated in the band of $7.80-$7.96 billion. This indicates anticipated growth of 1-3%. The current Zacks Consensus Estimate for revenues of $7.90 billion falls within the company’s guided band.

Operating cash flow for 2020 is envisioned in the range of $1.25-$1.30 billion. The capital expenditure is forecast at $375-$400 million.

Our Take

Quest Diagnostics reported a strong fourth quarter with both earnings and revenues beating the respective Zacks Consensus Estimate. We are upbeat about the company’s expanded network access, which helped the company accelerate volume growth in the fourth quarter. This solid volume expansion combined with its strategy to attain operational excellence aided it to counter significant reimbursement pressure. The current-year outlook seems promising despite the company’s having reckoned another year of meaningful reimbursement pressure.

Zacks Rank & Key Picks

Quest Diagnostics currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space are SeaSpine Holdings Corporation SPNE, STERIS plc STE and DexCom, Inc. DXCM, all three carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for SeaSpine’s fourth-quarter 2019 revenues is pegged at $43.6 million, suggesting 14.7% growth rate from the prior-year reported figure. The same for loss per share is anticipated at 44 cents, implying a 16.9% improvement from the year-ago reported number.

The Zacks Consensus Estimate for STERIS’s third-quarter fiscal 2020 revenues is pegged at $749.7 million, hinting at a 7.7% increase from the year-earlier reported figure. The same for adjusted earnings per share stands at $1.43, indicating a 13.5% rise from the year-ago reported figure.

The Zacks Consensus Estimate for DexCom’s fourth-quarter 2019 revenues is pegged at $457 million, suggesting 35.2% growth from the prior-year reported figure. The same for adjusted earnings per share stands at 72 cents, implying 33.3% increase from the year-earlier reported figure.

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