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Here's Why You Should Retain Quest Diagnostics (DGX) Stock Now
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Quest Diagnostics Incorporated (DGX - Free Report) is well poised for growth in the coming months as the company’s base business continues to improve sequentially, signifying the ongoing industry-wide recovery. The better-than-expected results for third-quarter 2021 buoy optimism on the stock. However, market headwinds and stiff competition remain concerns.
In the past year, shares of this Zacks Rank #3 (Hold) company have gained 39.5% against the 43.3% decline of the industry and 26.1% rise of the S&P 500.
The largest provider of commercial laboratory services in North America has a market cap of $20.58 billion. The company surpassed estimates in the trailing three quarters and missed the same in one, the average surprise being 12.25%.
Let us delve deeper.
Key Growth Drivers
Q3 Upsides: Quest Diagnostics reported better-than-expected third-quarter adjusted earnings and revenues. Base business continued to deliver solid volume growth compared to 2019. A temporary softness in base business in summer got rebounded in September. Quest Diagnostics noted that its base business continued to improve sequentially in the third quarter signifying the ongoing recovery trend of the industry. In COVID-19 testing, molecular diagnostic testing volumes increased sequentially in the third quarter, driven by the massive spread of the Delta variant throughout summer. Testing began to increase meaningfully in mid-July and peaked in early-to-mid-September.
Base Volume Improves: Quest Diagnostics’ base testing volumes or base business refers to testing volumes, excluding COVID-19 testing. In the third quarter, despite COVID-19 resurgence, the base business registered sequential growth. The company noted that base business volumes rebounded in September following a modest softening in August, partially caused by the rise of the Delta variant and the timing of summer vacations.
Base Diagnostic Information Services revenues grew approximately 6% in the third quarter (up nearly 2% excluding acquisitions). Compared to the third-quarter 2019 baseline, total base testing volumes increased 9%. Excluding acquisitions, total base testing volumes grew approximately 4% and benefited from the company’s new professional lab services (PLS) contracts that have ramped over the last year.
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Raised Guidance: After raising its full-year projection in September, Quest Diagnostics further increased the same on its third-quarter earnings call.
Full-year net revenues are currently estimated in the range of $10.45-$10.60 billion, up from the earlier band of $9.84-$10.09 billion, indicating an improvement of 10.7-12.3% (earlier growth expectation was 4.3-6.9%) from 2020. The adjusted earnings per share guidance also has been raised to the range of $13.50-$13.90 from the previous $11.65-$12.35.
Downsides
Current Market Headwinds Weigh Heavily on the Stock: The current market environment remains challenging for Quest Diagnostics due to persistent decline in healthcare utilization rate, softer volume, commercial pricing pressure and reimbursement headwind.
Competitive Landscape: Quest Diagnostics faces intense competition primarily from Laboratory Corporation of America, other commercial laboratories and hospitals. Hospitals control an estimated 60% of the diagnostic test market, compared to Quest Diagnostic’s 15% share.
Estimate Trends
Quest Diagnostics is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for earnings has moved 20.3% north to $13.95.
The Zacks Consensus Estimate for 2021 revenues is pegged at $10.64 billion, suggesting 12.8% growth from the year-ago reported number.
Key Picks
Few better-ranked stocks in the broader medical space include Thermo Fisher Scientific Inc. (TMO - Free Report) , McKesson Corporation (MCK - Free Report) and NextGen Healthcare, Inc. .
Thermo Fisher’s long-term earnings growth rate is estimated at 14%. The company’s earnings yield of 3.7% compares favorably with the industry’s (3.6%).
McKesson beat earnings estimates in each of the trailing four quarters, the average surprise being 19.9%. The company currently carries a Zacks Rank #2.
McKesson’s long-term earnings growth rate is estimated at 8.9%. The company’s earnings yield of 9.9% compares favorably with the industry’s 3.2%.
NextGen Healthcare surpassed earnings estimates in each of the trailing four quarters, the average surprise being 16%. The company currently carries a Zacks Rank of 2.
NextGen Healthcare’s long-term earnings growth rate is estimated at 8.5%. The company’s earnings yield of 5.9% compares favorably with the industry’s (4.1%).
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Here's Why You Should Retain Quest Diagnostics (DGX) Stock Now
Quest Diagnostics Incorporated (DGX - Free Report) is well poised for growth in the coming months as the company’s base business continues to improve sequentially, signifying the ongoing industry-wide recovery. The better-than-expected results for third-quarter 2021 buoy optimism on the stock. However, market headwinds and stiff competition remain concerns.
In the past year, shares of this Zacks Rank #3 (Hold) company have gained 39.5% against the 43.3% decline of the industry and 26.1% rise of the S&P 500.
The largest provider of commercial laboratory services in North America has a market cap of $20.58 billion. The company surpassed estimates in the trailing three quarters and missed the same in one, the average surprise being 12.25%.
Let us delve deeper.
Key Growth Drivers
Q3 Upsides: Quest Diagnostics reported better-than-expected third-quarter adjusted earnings and revenues. Base business continued to deliver solid volume growth compared to 2019. A temporary softness in base business in summer got rebounded in September. Quest Diagnostics noted that its base business continued to improve sequentially in the third quarter signifying the ongoing recovery trend of the industry. In COVID-19 testing, molecular diagnostic testing volumes increased sequentially in the third quarter, driven by the massive spread of the Delta variant throughout summer. Testing began to increase meaningfully in mid-July and peaked in early-to-mid-September.
Base Volume Improves: Quest Diagnostics’ base testing volumes or base business refers to testing volumes, excluding COVID-19 testing. In the third quarter, despite COVID-19 resurgence, the base business registered sequential growth. The company noted that base business volumes rebounded in September following a modest softening in August, partially caused by the rise of the Delta variant and the timing of summer vacations.
Base Diagnostic Information Services revenues grew approximately 6% in the third quarter (up nearly 2% excluding acquisitions). Compared to the third-quarter 2019 baseline, total base testing volumes increased 9%. Excluding acquisitions, total base testing volumes grew approximately 4% and benefited from the company’s new professional lab services (PLS) contracts that have ramped over the last year.
Raised Guidance: After raising its full-year projection in September, Quest Diagnostics further increased the same on its third-quarter earnings call.
Full-year net revenues are currently estimated in the range of $10.45-$10.60 billion, up from the earlier band of $9.84-$10.09 billion, indicating an improvement of 10.7-12.3% (earlier growth expectation was 4.3-6.9%) from 2020. The adjusted earnings per share guidance also has been raised to the range of $13.50-$13.90 from the previous $11.65-$12.35.
Downsides
Current Market Headwinds Weigh Heavily on the Stock: The current market environment remains challenging for Quest Diagnostics due to persistent decline in healthcare utilization rate, softer volume, commercial pricing pressure and reimbursement headwind.
Competitive Landscape: Quest Diagnostics faces intense competition primarily from Laboratory Corporation of America, other commercial laboratories and hospitals. Hospitals control an estimated 60% of the diagnostic test market, compared to Quest Diagnostic’s 15% share.
Estimate Trends
Quest Diagnostics is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for earnings has moved 20.3% north to $13.95.
The Zacks Consensus Estimate for 2021 revenues is pegged at $10.64 billion, suggesting 12.8% growth from the year-ago reported number.
Key Picks
Few better-ranked stocks in the broader medical space include Thermo Fisher Scientific Inc. (TMO - Free Report) , McKesson Corporation (MCK - Free Report) and NextGen Healthcare, Inc. .
Thermo Fisher surpassed earnings estimates in each of the trailing four quarters, the average surprise being 9.02%. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Thermo Fisher’s long-term earnings growth rate is estimated at 14%. The company’s earnings yield of 3.7% compares favorably with the industry’s (3.6%).
McKesson beat earnings estimates in each of the trailing four quarters, the average surprise being 19.9%. The company currently carries a Zacks Rank #2.
McKesson’s long-term earnings growth rate is estimated at 8.9%. The company’s earnings yield of 9.9% compares favorably with the industry’s 3.2%.
NextGen Healthcare surpassed earnings estimates in each of the trailing four quarters, the average surprise being 16%. The company currently carries a Zacks Rank of 2.
NextGen Healthcare’s long-term earnings growth rate is estimated at 8.5%. The company’s earnings yield of 5.9% compares favorably with the industry’s (4.1%).