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Should You Add Quest Diagnostics Stock to Your Portfolio Right Now?
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Quest Diagnostics Inc. (DGX - Free Report) continues the strong momentum in its expanding portfolio of Advanced Services, which is poised to help it grow in the upcoming quarters. The company strategically deploys AI and automation to improve its operational quality and efficiency, while Invigorate aims to reach its annual target. Its base business volume remains robust, which is highly encouraging. However, the mounting debt burden on its balance sheet and industry headwinds could pose challenges for Quest Diagnostics’ operations.
In the past year, this Zacks Rank #2 (Buy) stock has risen 20.2% compared to the industry’s 30.1% fall and the S&P 500 composite’s rise of 30.3%.
The renowned provider of diagnostic information services has a market capitalization of $16.35 billion. Quest Diagnostics has an earnings yield of 6.1% compared with the industry’s yield of 3.6%. The company’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 3.3%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Let’s dig deep.
DGX’s Tailwinds
Strength of Advanced Diagnostics: Quest Diagnostics’ highly specialized Advanced Diagnostics offerings have generated robust growth in recent quarters. Among these, the growth of brain health continues to be driven by the Alzheimer's disease portfolio, which features AD-Detect blood testing services and CSF (Cerebrospinal fluid) tests for diagnosing and monitoring. In April, the company added phosphorylated tau 217, or p-tau217 test, to the AD-Detect portfolio, with plans for launching additional biomarkers later this year.
Meanwhile, the acquisition of the cancer testing company, Haystack Oncology, has strategically placed the company in the higher-growth clinical area of ctDNA (Circulating tumor DNA) solid-tumor MRD (minimal residual disease) testing. DGX validated its first MRD product in March 2024, set to have its nationwide launch later this year. Furthermore, Quest Diagnostics' STEP500 somatic tumor sequencing service is gaining interest from large cancer centers. The company received the first specimens from UniversalDX for the PROMIS Clinical Trial on a liquid biopsy screening test for colorectal cancer.
A Strategic Imperative to Drive Operational Excellence: 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.
Image Source: Zacks Investment Research
In the second quarter of 2024, it enhanced the use of automation and AI to improve productivity, as well as service levels and quality. AI capabilities were expanded in microbiology to identify specimens with no evidence of microbial growth, enabling medical scientists to focus on reviewing those with the greatest likelihood of disease. The company is optimistic about leveraging AI in various clinical areas, such as cytology, pathology and parasitology, in the near term. These actions should lead to significant margin improvements in Quest Diagnostics’ base business.
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 and the ongoing return to care. In the second quarter, Quest Diagnostics delivered strong volume and revenue growth from its Medicare Advantage plans.
Within Hospital lab services, the PLS and hospital reference testing businesses have been outpacing historical trends and market growth projections. The company is making headway in its robust M&A pipeline, such as the acquisition of PathAI Diagnostics. Its strong consumer focus is helping it capture growing opportunities in consumer-initiated testing and demand for expanded access to basic health care.
Concerns for Quest Diagnostics
Escalating Debt Level: The company’s solvency level remains a concern, closing the 2024 second quarter with long-term debt of $3.82 billion, while the cash and cash equivalent balance was only $271 million. The current portion of the debt stood much higher at $606 million. The times interest ratio declined 0.3% sequentially to 7.7%.
Industry Risks That May Affect the Stock: Amid the continuing evolution of the healthcare industry, the company’s operations are exposed to several inherent risks, such as fluctuations in the healthcare utilization rate, softer testing volumes, commercial pricing pressure and reimbursement headwinds. The clinical testing industry is subject to seasonal fluctuations, which reduces net revenues and operating cash flows below annual averages. Clinical testing orders generated from clinician offices, hospitals, employers and consumers can be affected by changes in the U.S. economy and regulatory environment.
DGX Stock Estimate Trend
The Zacks Consensus Estimate for Quest Diagnostics’ 2024 earnings per share (EPS) has remained constant at $8.89 in the past 30 days.
The consensus mark for the company’s 2024 revenues is pegged at $9.59 billion, a 3.7% increase from the year-ago reported number.
Other Top MedTech Picks
Some other top-ranked stocks in the broader medical space are TransMedix Group (TMDX - Free Report) , Boston Scientific (BSX - Free Report) and Phibro Animal Health (PAHC - Free Report) . While TransMedix Group currently sports a Zacks Rank #1 (Strong Buy), Boston Scientific and Phibro Animal Health each carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
TransMedix Group’s earnings are expected to surge 259.7% in 2024. Its shares have rallied 165% compared with the industry’s 17.7% growth in the past year. TMDX’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 287.5%.
Boston Scientific has an estimated 2024 earnings growth rate of 17.1% compared with the industry’s 12.3%. Shares of the company have surged 59.5% compared with the industry’s 21% growth in the past year. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 7.2%.
Phibro Animal Health has an estimated fiscal 2025 earnings growth rate of 21% compared with the industry’s 12.6% growth. Shares of the company have surged 79.3% compared with the industry’s 21.1% growth in the past year. PAHC’s earnings surpassed estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 4.1%.
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Should You Add Quest Diagnostics Stock to Your Portfolio Right Now?
Quest Diagnostics Inc. (DGX - Free Report) continues the strong momentum in its expanding portfolio of Advanced Services, which is poised to help it grow in the upcoming quarters. The company strategically deploys AI and automation to improve its operational quality and efficiency, while Invigorate aims to reach its annual target. Its base business volume remains robust, which is highly encouraging. However, the mounting debt burden on its balance sheet and industry headwinds could pose challenges for Quest Diagnostics’ operations.
In the past year, this Zacks Rank #2 (Buy) stock has risen 20.2% compared to the industry’s 30.1% fall and the S&P 500 composite’s rise of 30.3%.
The renowned provider of diagnostic information services has a market capitalization of $16.35 billion. Quest Diagnostics has an earnings yield of 6.1% compared with the industry’s yield of 3.6%. The company’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 3.3%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Let’s dig deep.
DGX’s Tailwinds
Strength of Advanced Diagnostics: Quest Diagnostics’ highly specialized Advanced Diagnostics offerings have generated robust growth in recent quarters. Among these, the growth of brain health continues to be driven by the Alzheimer's disease portfolio, which features AD-Detect blood testing services and CSF (Cerebrospinal fluid) tests for diagnosing and monitoring. In April, the company added phosphorylated tau 217, or p-tau217 test, to the AD-Detect portfolio, with plans for launching additional biomarkers later this year.
Meanwhile, the acquisition of the cancer testing company, Haystack Oncology, has strategically placed the company in the higher-growth clinical area of ctDNA (Circulating tumor DNA) solid-tumor MRD (minimal residual disease) testing. DGX validated its first MRD product in March 2024, set to have its nationwide launch later this year. Furthermore, Quest Diagnostics' STEP500 somatic tumor sequencing service is gaining interest from large cancer centers. The company received the first specimens from UniversalDX for the PROMIS Clinical Trial on a liquid biopsy screening test for colorectal cancer.
A Strategic Imperative to Drive Operational Excellence: 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.
Image Source: Zacks Investment Research
In the second quarter of 2024, it enhanced the use of automation and AI to improve productivity, as well as service levels and quality. AI capabilities were expanded in microbiology to identify specimens with no evidence of microbial growth, enabling medical scientists to focus on reviewing those with the greatest likelihood of disease. The company is optimistic about leveraging AI in various clinical areas, such as cytology, pathology and parasitology, in the near term. These actions should lead to significant margin improvements in Quest Diagnostics’ base business.
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 and the ongoing return to care. In the second quarter, Quest Diagnostics delivered strong volume and revenue growth from its Medicare Advantage plans.
Within Hospital lab services, the PLS and hospital reference testing businesses have been outpacing historical trends and market growth projections. The company is making headway in its robust M&A pipeline, such as the acquisition of PathAI Diagnostics. Its strong consumer focus is helping it capture growing opportunities in consumer-initiated testing and demand for expanded access to basic health care.
Concerns for Quest Diagnostics
Escalating Debt Level: The company’s solvency level remains a concern, closing the 2024 second quarter with long-term debt of $3.82 billion, while the cash and cash equivalent balance was only $271 million. The current portion of the debt stood much higher at $606 million. The times interest ratio declined 0.3% sequentially to 7.7%.
Industry Risks That May Affect the Stock: Amid the continuing evolution of the healthcare industry, the company’s operations are exposed to several inherent risks, such as fluctuations in the healthcare utilization rate, softer testing volumes, commercial pricing pressure and reimbursement headwinds. The clinical testing industry is subject to seasonal fluctuations, which reduces net revenues and operating cash flows below annual averages. Clinical testing orders generated from clinician offices, hospitals, employers and consumers can be affected by changes in the U.S. economy and regulatory environment.
DGX Stock Estimate Trend
The Zacks Consensus Estimate for Quest Diagnostics’ 2024 earnings per share (EPS) has remained constant at $8.89 in the past 30 days.
The consensus mark for the company’s 2024 revenues is pegged at $9.59 billion, a 3.7% increase from the year-ago reported number.
Other Top MedTech Picks
Some other top-ranked stocks in the broader medical space are TransMedix Group (TMDX - Free Report) , Boston Scientific (BSX - Free Report) and Phibro Animal Health (PAHC - Free Report) . While TransMedix Group currently sports a Zacks Rank #1 (Strong Buy), Boston Scientific and Phibro Animal Health each carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
TransMedix Group’s earnings are expected to surge 259.7% in 2024. Its shares have rallied 165% compared with the industry’s 17.7% growth in the past year. TMDX’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 287.5%.
Boston Scientific has an estimated 2024 earnings growth rate of 17.1% compared with the industry’s 12.3%. Shares of the company have surged 59.5% compared with the industry’s 21% growth in the past year. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 7.2%.
Phibro Animal Health has an estimated fiscal 2025 earnings growth rate of 21% compared with the industry’s 12.6% growth. Shares of the company have surged 79.3% compared with the industry’s 21.1% growth in the past year. PAHC’s earnings surpassed estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 4.1%.