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Quest Diagnostics Raised to Buy

Zacks Equity Research

On April 11, Zacks Investment Research upgraded Quest Diagnostics Inc. (DGX) to a Zacks Rank #2 (Buy) from a Zacks Rank #3 (Hold).

Why the Upgrade?

Of late, Quest Diagnostics has been witnessing rising earnings estimates on the back of healthy fourth-quarter and full-year 2013 results. The company delivered a positive earnings surprise of 9.6% in the last reported quarter. The long-term expected earnings growth rate for the stock is 10.6%.   

Quest Diagnostics reported fourth-quarter and full-year 2013 results on Jan 30. Adjusted earnings per share of this New Jersey-based global diagnostic testing information services provider came in at $1.03, beating the Zacks Consensus Estimate of 94 cents by 9.6%, and exceeding the company's prior-year earnings by 2%.

During the fourth quarter, the company's volume increased 2.3% year over year, while sequential trends over the years improved for revenues, volume and revenues per requisition.

Despite a 1% drop in revenues, management remained optimistic about long-term growth at the company. This is because it anticipates that the healthcare market will benefit from continuous population growth and favorable demographics, along with expected growth in esoteric testing. This in turn should provide Quest Diagnostics significant opportunity to emerge as a leading high-quality, low-cost provider of diagnostic information services.

Quest Diagnostics has been making consistent progress in driving operational excellence. The company exited 2013 with run rate savings of more than $500 million, thereby surpassing its original Invigorate Goal established in 2011.

In addition, the company's board of directors has authorized a 10% hike in its quarterly dividend from 30 cents to 33 cents per share, or $1.32 per share annually, payable on April 23, 2014, to shareholders of record of Quest Diagnostics' common stock on April 8, 2014.

The Zacks Consensus Estimate for earnings for fiscal 2014 increased 0.2% to $4.04 per share over the last 30 days. For fiscal 2015, the Zacks Consensus Estimate rose 0.7% to $4.32 per share over the same time frame.

Other Stocks to Consider

In the broader medical care space, Chemed Corp. (CHE), ICON Public Limited Co. (ICLR) and Myriad Genetics Inc. (MYGN) are also performing well. All the three stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on DGX
Read the Full Research Report on MYGN
Read the Full Research Report on ICLR
Read the Full Research Report on CHE

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