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Why Is Quest Diagnostics (DGX) Down 0.2% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Quest Diagnostics (DGX). Shares have lost about 0.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Quest Diagnostics due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Quest Diagnostics Posts Earnings Beat, Revenue Per Requisition Falls in Q2

Quest Diagnostics’ second-quarter 2019 adjusted earnings per share (EPS) of $1.73 surpassed the Zacks Consensus Estimate by 2.4%. However, adjusted earnings declined 1.1% from the year-ago number.

Reported EPS came in at $1.51, down 3.8% from the year-ago quarter.

Reported revenues in the second quarter rose 1.8% year over year to $1.95 billion and also beat the consensus estimate by 0.5%.

Quarterly Details

Volumes (measured by the number of requisitions) expanded 4.4% year over year in the second quarter (up 2.9% organically). However, revenue per requisition dropped 2.3%. Diagnostic information services revenues in the quarter were up 2.2% on a year-over-year basis to $1.87 billion.

Cost of services during the reported quarter was $1.27 billion, up 1.8% year over year. Gross margin came in at 35.2%, almost in line with the year-ago figure.

Selling, general and administrative expenses increased 3.1% to $362 million in the quarter under review. Adjusted operating margin came in at 16.7%, suggesting a 24-basis point (bps) contraction year over year.

Quest Diagnostics exited the quarter with cash and cash equivalents of $273 million compared with $464 million at the end of the first quarter. Year-to-date net cash provided by operating activities was $596 million in the second quarter of 2019 compared with $503 million a year ago.

In the second quarter, the company repurchased 0.5 million shares of the common stock for $50 million. As of Jun 30, 2019, Quest Diagnostics was left with $0.5 billion of authorization under the approved share buyback plan.

2019 Guidance Intact

Quest Diagnostics has reaffirmed its 2019 outlook. Adjusted EPS for the full year is projected to be more than $6.40. The Zacks Consensus Estimate for the metric is pegged at $6.47.

Revenues for 2019 are estimated in the band of $7.60-$7.75 billion (indicative of roughly 1-3% annualized growth). The current Zacks Consensus Estimate for revenues of $7.69 billion falls within the company’s projected range.

Operating cash flow for 2019 is expected at around $1.3 billion. The estimated range for capital expenditure is maintained at $350-$400 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Quest Diagnostics has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Quest Diagnostics has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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