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Quest Diagnostics Grows on New Pacts Amid Reimbursement Issue

Zacks Equity Research

On Mar 22, we issued an updated research report on Quest Diagnostics, Inc. DGX. As a part of its two-point strategy, Quest Diagnostics has been focusing on areas with high potential. However, the reimbursement scenario remains a major cause of concern for thisZacks Rank #3 (Hold) company.

Quest Diagnostics is currently focusing on diagnostic information services and disciplined capital deployment. Meanwhile, the company’s acquisitions and collaborations with hospitals and integrated delivery networks act as major growth drivers.

We are upbeat about the company’s partnership with UnitedHealthcare, a business of UnitedHealth Group, to operate as a preferred national laboratory for the latter’s members since Jan 1, 2019.

This agreement will provide in-network access to Quest Diagnostics’ complete portfolio of laboratory services to more than 48 million eligible members. Under the expanded tie-up, the companies are going to collaborate on a variety of value-based programs.

Quest Diagnostics Incorporated Price

 

Quest Diagnostics Incorporated Price | Quest Diagnostics Incorporated Quote

 

Of late, major developments included the company’s progress in prescription drug monitoring, QuantiFERON and non-invasive prenatal screening. In advanced diagnostics, it witnessed a strong uptick. This apart, the buyout of Med Fusion has helped accelerate growth for the company’s tumor panels.

On the flip side, the company exited the fourth quarter on a sluggish note. A decline in Diagnostic information services revenues was disappointing. Moreover, we are concerned about factors like unfavorable changes in prescription drug monitoring, vitamin D and hepatitis C testing marketplace that can dent growth. A rise in patient concession along with certain reserve adjustments affected the top line, inducing lower revenue per requisition.

This apart, Quest Diagnostics is apprehensive about dealing with a massive reimbursement pressurein 2019 which may get partially offset by steady execution of the Invigorate program. The company expects about a 10% reduction in Medicare reimbursement rates this year. The impact of these cutbacks will be more significant on smaller independent hospital outreach laboratories, which the company believes can eliminate majority of profit and bring about market consolidation.

Shares of Quest Diagnostics have outperformed its industry in the past six months. The stock has declined 17% compared with the 25.6% fall of the industry.

Stocks to Consider

A few better-ranked stocks in the broader medical space are Abbott Laboratories ABT, Penumbra, Inc., PEN and Masimo, Inc. MASI. Notably, each of these stocks currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Abbott’s long-term earnings growth rate is projected at 11.73%

Penumbra’s long-term earnings growth rate is estimated at 20.93%.

Masimo’s long-term earnings are projected to grow 15.60%.

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