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Should Quest Diagnostics (DGX) be in Your Portfolio Now?
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Quest Diagnostics Inc.’s (DGX - Free Report) sustained growth momentum within the legacy base business is poised to help it grow in the upcoming quarters. Strong progress in the company’s highly specialized Advanced Diagnostics offerings is encouraging. Additionally, the cost discipline program, Invigorate, is boosting productivity through automation and AI. However, a debt-laden balance sheet and challenges from fierce competition are concerning for DGX’s operations.
In the past year, this Zacks Rank #2 (Buy) stock has rallied 11.3% compared with the industry’s 13.6% growth and the 19.3% rise of the S&P 500 composite.
The renowned provider of diagnostic information services has a market capitalization of $16.62 billion. The company’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 3.31%.
Let’s delve deeper.
Tailwinds
Growth Momentum in the Base Business Continues: Quest Diagnostics has been experiencing robust volume growth in its core business (excluding Covid Testing), banking on the growth of new physician and hospital customers, a more favorable test mix with increased use of advanced diagnostics, continued strength in healthcare utilization as well as the ongoing return to care. The latest second quarter of 2024 also marked another strong base business growth for Physician Lab Services, driven by overall market growth and share gains on new customer wins.
Added to this, the company delivered strong volume and revenue growth from its Medicare Advantage plans. PLS and hospital reference testing have been outpacing both historical trends and market growth projections. Additionally, DGX is making headway with several promising opportunities within its robust M&A pipeline, such as the recently closed acquisition of PathAI Diagnostics. Further, Quest Diagnostics’ strong consumer focus is driving growth in consumer-initiated testing and expanded access to basic health care.
Image Source: Zacks Investment Research
Strong Potential of Advanced Diagnostics: Quest Diagnostics’ Advanced Diagnostics offerings have generated robust growth in recent quarters. A key driver in Brain Health growth is the company’s Alzheimer's disease portfolio, featuring the AD-Detect blood testing services and the CSF Tests for diagnosing and monitoring. The acquisition of the cancer testing company, Haystack Oncology, has strategically placed DGX in the higher-growth clinical area of ctDNA (Circulating tumor DNA) solid-tumor MRD (minimal residual disease) testing.
Alongside this, the company has been expanding the pool of evidence on the clinical and economic value of ctDNA blood testing in cancer care. Furthermore, Quest Diagnostics' STEP500 somatic tumor sequencing service is gaining interest from large cancer centers.
A Strategic Imperative to Drive Operational Excellence: As part of its broader strategy to drive operational improvements across the business, Quest Diagnostics strategically deploys automation and AI to improve quality, service, efficiency and the workforce experience. The company’s multi-year cost excellence program, Invigorate, has consistently delivered 3% annual cost savings and productivity enhancements, acting as a shield against inflationary pressures such as rising labor and benefit costs and reimbursement challenges. In the second quarter, it enhanced the use of automation and AI to improve productivity, as well as service levels and quality.
Headwinds
Escalating Debt Level: At the end of the second quarter of 2024, the company had long-term debt of $3.82 billion on the balance sheet, while the cash and cash equivalent balance was only $271 million. The current portion of the debt stood much higher at $606 million, raising concerns about its liquidity position.
Competitive Landscape: Quest Diagnostics faces intense competition, primarily from LabCorp, other commercial laboratories and hospitals. While pricing is an important factor in choosing a testing lab, hospital-affiliated physicians expect a high level of service, including an accurate and rapid turnaround of testing results. As a result, Quest Diagnostics and other commercial labs compete mainly on the quality of service.
Estimate Trend
The Zacks Consensus Estimate for Quest Diagnostics’ 2024 earnings per share (EPS) has moved up to $8.88 from $8.79 in the past 30 days.
The consensus estimate for the company’s 2024 revenues is pegged at $9.52 billion. This suggests a 2.9% rise from the year-ago reported number.
Other Key Picks
Some other top-ranked stocks in the broader medical space are TransMedix Group (TMDX - Free Report) , Boston Scientific (BSX - Free Report) and Myriad Genetics (MYGN - Free Report) .
TransMedix Group’s earnings are expected to surge 242.9% in 2024. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 287.5%. Its shares have soared 160.4% compared with the industry’s 5.2% rise in the past year.
Boston Scientific, carrying a Zacks Rank #2 at present, has an estimated earnings growth rate of 17.1% compared with the industry’s 15.5%. Shares of the company have rallied 48% compared with the industry’s 5.2% rise over the past year.
BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.2%.
Myriad Genetics, carrying a Zacks Rank #2 at present, has an estimated long-term earnings growth rate of 51.3% compared with the industry’s 21.4%. Shares of the company have jumped 56.9% compared with the industry’s 5.2% growth over the past year.
MYGN’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 213.4%.
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Should Quest Diagnostics (DGX) be in Your Portfolio Now?
Quest Diagnostics Inc.’s (DGX - Free Report) sustained growth momentum within the legacy base business is poised to help it grow in the upcoming quarters. Strong progress in the company’s highly specialized Advanced Diagnostics offerings is encouraging. Additionally, the cost discipline program, Invigorate, is boosting productivity through automation and AI. However, a debt-laden balance sheet and challenges from fierce competition are concerning for DGX’s operations.
In the past year, this Zacks Rank #2 (Buy) stock has rallied 11.3% compared with the industry’s 13.6% growth and the 19.3% rise of the S&P 500 composite.
The renowned provider of diagnostic information services has a market capitalization of $16.62 billion. The company’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 3.31%.
Let’s delve deeper.
Tailwinds
Growth Momentum in the Base Business Continues: Quest Diagnostics has been experiencing robust volume growth in its core business (excluding Covid Testing), banking on the growth of new physician and hospital customers, a more favorable test mix with increased use of advanced diagnostics, continued strength in healthcare utilization as well as the ongoing return to care. The latest second quarter of 2024 also marked another strong base business growth for Physician Lab Services, driven by overall market growth and share gains on new customer wins.
Added to this, the company delivered strong volume and revenue growth from its Medicare Advantage plans. PLS and hospital reference testing have been outpacing both historical trends and market growth projections. Additionally, DGX is making headway with several promising opportunities within its robust M&A pipeline, such as the recently closed acquisition of PathAI Diagnostics. Further, Quest Diagnostics’ strong consumer focus is driving growth in consumer-initiated testing and expanded access to basic health care.
Image Source: Zacks Investment Research
Strong Potential of Advanced Diagnostics: Quest Diagnostics’ Advanced Diagnostics offerings have generated robust growth in recent quarters. A key driver in Brain Health growth is the company’s Alzheimer's disease portfolio, featuring the AD-Detect blood testing services and the CSF Tests for diagnosing and monitoring. The acquisition of the cancer testing company, Haystack Oncology, has strategically placed DGX in the higher-growth clinical area of ctDNA (Circulating tumor DNA) solid-tumor MRD (minimal residual disease) testing.
Alongside this, the company has been expanding the pool of evidence on the clinical and economic value of ctDNA blood testing in cancer care. Furthermore, Quest Diagnostics' STEP500 somatic tumor sequencing service is gaining interest from large cancer centers.
A Strategic Imperative to Drive Operational Excellence: As part of its broader strategy to drive operational improvements across the business, Quest Diagnostics strategically deploys automation and AI to improve quality, service, efficiency and the workforce experience. The company’s multi-year cost excellence program, Invigorate, has consistently delivered 3% annual cost savings and productivity enhancements, acting as a shield against inflationary pressures such as rising labor and benefit costs and reimbursement challenges. In the second quarter, it enhanced the use of automation and AI to improve productivity, as well as service levels and quality.
Headwinds
Escalating Debt Level: At the end of the second quarter of 2024, the company had long-term debt of $3.82 billion on the balance sheet, while the cash and cash equivalent balance was only $271 million. The current portion of the debt stood much higher at $606 million, raising concerns about its liquidity position.
Competitive Landscape: Quest Diagnostics faces intense competition, primarily from LabCorp, other commercial laboratories and hospitals. While pricing is an important factor in choosing a testing lab, hospital-affiliated physicians expect a high level of service, including an accurate and rapid turnaround of testing results. As a result, Quest Diagnostics and other commercial labs compete mainly on the quality of service.
Estimate Trend
The Zacks Consensus Estimate for Quest Diagnostics’ 2024 earnings per share (EPS) has moved up to $8.88 from $8.79 in the past 30 days.
The consensus estimate for the company’s 2024 revenues is pegged at $9.52 billion. This suggests a 2.9% rise from the year-ago reported number.
Other Key Picks
Some other top-ranked stocks in the broader medical space are TransMedix Group (TMDX - Free Report) , Boston Scientific (BSX - Free Report) and Myriad Genetics (MYGN - Free Report) .
TransMedix Group’s earnings are expected to surge 242.9% in 2024. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 287.5%. Its shares have soared 160.4% compared with the industry’s 5.2% rise in the past year.
TMDX sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Boston Scientific, carrying a Zacks Rank #2 at present, has an estimated earnings growth rate of 17.1% compared with the industry’s 15.5%. Shares of the company have rallied 48% compared with the industry’s 5.2% rise over the past year.
BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.2%.
Myriad Genetics, carrying a Zacks Rank #2 at present, has an estimated long-term earnings growth rate of 51.3% compared with the industry’s 21.4%. Shares of the company have jumped 56.9% compared with the industry’s 5.2% growth over the past year.
MYGN’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 213.4%.