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Quest Diagnostics (DGX) Updates Its Strategic Focus, LT Growth

Quest Diagnostics DGX talked about its strategic priorities and growth drivers at the 2023 Investor Day. The company also discussed its shareholder value creation and updated its long-term financial outlook from 2023 through 2026. It has also reiterated its 2023 annual guidance.

Per the update, the company’s acceleration growth strategy has been refined and it is building strong platforms to focus on high-growth areas like molecular genomics and oncology.

Let's delve deeper.

Strategic Initiatives and LT Growth

Quest Diagnostics’ new strategic initiatives to drive growth are as follows.

First, leveraging on the company's strong position in physician lab services by partnering with health plans, it is trying to expand value-based care and retail relationships.

Second, the company is planning to achieve growth with hospitals by expanding reference capabilities, enhancing Professional Lab Services offerings and acquiring outreach laboratory testing services.

Third, Quest Diagnostics expects to grow in the consumer health market through direct sales, menu expansion and partnerships.

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Fourth, the company is increasing its share in advanced diagnostics through continued investments in molecular genomics and oncology.

It is also recommitting to deliver 3% annual savings and productivity improvements under its existing cost-saving program, Invigorate. This program includes leveraging automation and artificial intelligence, reducing denials and write-offs, enhancing the digital experience, and selecting and retaining talent.

Based on these strategies, the company has updated its 2023-2026 CAGR. During this period, Quest Diagnostics expects to generate revenues at a mid-single-digit CAGR and adjusted EPS at a high single-digit CAGR.

2023 Guidance

Meanwhile, Quest Diagnostics has reaffirmed its 2023 full-year guidance.

Full-year net revenues are estimated in the range of $8.83-$9.03 billion, indicating an 8.6%-10.7% decline from the 2022 reported level. COVID-19 testing revenues are expected to be in the range of $175-$275 million, indicating a massive 81.1%-88% plunge from 2022 levels. Base business, however, is expected to be $8.65-$8.75 billion, implying 2.6%-3.8% growth from the year-ago period.

Adjusted earnings per share are expected in the range of $8.40-$9.00.

Q4 Performance at a Glance

Quest Diagnostics reported better-than-expected fourth-quarter 2022 earnings and revenues. During the last reported quarter, the base business registered growth. The company has also ramped up investments to accelerate growth in the base business, particularly in advanced diagnostics and direct-to-consumer testing. In advanced diagnostics, it generated strong double-digit growth in prenatal genetics and pharma services and also launched a solid tumor expanded panel as a laboratory-developed test.

In addition, to help offset inflationary pressures, it has continued to pursue its operational excellence strategy and has been closely managing the cost structure through the company’s invigorate initiatives.

However, in the fourth quarter, COVID-19 testing revenues plunged 74.6%. Revenues for diagnostic information services declined 15.3% compared to the prior year, reflecting lower revenues from COVID-19 testing services than the fourth quarter of 2021. For the quarter, total base testing volumes declined 0.6% versus the prior year. The year-over-year decline was primarily related to lower employer drug testing volume and adverse weather events during the quarter.

Share Price

In the past year, Quest Diagnostics has outperformed its industry. The stock has lost 8.6% compared to the 23.6% decline of the industry.

Zacks Rank and Key Picks

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

Some better-ranked stocks in the overall healthcare sector include Haemonetics Corporation HAE, TerrAscend Corp. TRSSF and Akerna Corp. KERN. Haemonetics and TerrAscend both sport a Zacks Rank #1 (Strong Buy), while Akerna carries a Zack Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Haemonetics’ stock has risen 42.1% in the past year. Earnings Estimates for Haemonetics have increased from $2.87 per share to $2.91 for 2023, and from $3.02 per share to $3.28 for 2024 in the past 30 days.

HAE’s earnings beat estimates in all the last four quarters, delivering an average surprise of 10.98%. In the last reported quarter, it reported an earnings surprise of 7.59%.

Estimates for TerrAscend in 2023 have remained constant at a loss of 10 cents per share in the past 30 days. Shares of TerrAscend have declined 70.6% in the past year.

TerrAscend’s earnings beat estimates in one of the last three quarters and missed the mark in the other two, the average negative surprise being 136.11%. In the last reported quarter, TRSSF delivered an earnings surprise of 216.67%.

Akerna’s stock declined 95.7% in the past year. Its estimates for 2023 have remained constant at a loss of $1.91 per share over the past 30 days.

Akerna missed earnings estimates in all the last four quarters, delivering a negative earnings surprise of 15.49%, on average. In the last reported quarter, KERN delivered a negative earnings surprise of 13.33%.

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