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Will COVID-19 Test Aid Quest Diagnostics (DGX) Q1 Earnings?

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Quest Diagnostics Incorporated (DGX - Free Report) is scheduled to report first-quarter 2020 earnings on Apr 22, before the opening bell.

In the last reported quarter, the company’s earnings of $1.67 exceeded the Zacks Consensus Estimate by 4.37%. In each of the trailing four quarters, its earnings surpassed estimates, the average positive surprise being 3%.

Let’s take a look at how things are shaping up prior to this announcement.

Key Factors

Quest Diagnostics seems well-aligned with its two-pronged agenda to accelerate growth and drive operational excellence. However, the stock has been on a declining trend like most stocks in the industry, for the past three months.

The coronavirus outbreak has massively disrupted the global supply chain. Hence, Quest Diagnostics, which maintains testing facilities in countries like England, India, Mexico and Puerto Rico, and provides clinical trial testing in Argentina, Brazil, China and Singapore, is expected to have witnessed a significant fall in its quarterly revenues.

Meanwhile, as a remarkable breakthrough, the company launched a COVID-19 test service on Mar 9. This test got the green light from the FDA’s EUA on Mar 17. As per the company’s Apr 1 update, from Mar 9 through Apr 1, Quest Diagnostics has performed and reported results of more than 400,000 COVID-19 tests to providers and patients across the United States.

In the meantime, in mid-to-late March, the company implemented a higher throughput in vitro diagnostic test for coronavirus from Roche at 12 Quest Diagnostics laboratories across the United States. It also implemented lab-developed tests at two additional laboratories. Quest Diagnostics completed this process by the end of March. According to the company, it exited March with a capacity of more than 30,000 COVID-19 tests a day across the 12 performing laboratories.

Although the entire thing took place in the later part of the March-end quarter, these are expected to have contributed to the company’s first-quarter revenues.

Also, the company’s growing partnerships with other health care leaders and prudent buyouts are creating a pool of opportunities for the top and bottom lines. At the same time, the patient experience has improved and the overall cost of care, reduced.

As evidence, despite PAMA reimbursement pressures weighing heavily on the industry, the company has fulfilled all the five elements of its growth acceleration strategy through the last few quarters. We strongly expect the upcoming quarterly results to duly reflect this momentum.

In this regard, we should mention about strategic buyouts like Boston Clinical Laboratories — a small regional laboratory in Massachusetts. Quest Diagnostics has also announced two new acquisitions. The first, the Blueprint Genetics buyout, will strengthen the company’s position in advanced diagnostics, through proprietary bioinformatics, which is often a bottleneck in next-generation sequencing. It has also announced a multifaceted long-term collaboration with the Memorial Hermann Health System.

Further, the company signed a professional laboratory services agreement with an eight-hospital health system in Tennessee. Apart from this, the company has become the UnitedHealthcare preferred lab network provider and begun an aggressive outreach campaign to physicians and UnitedHealthcare members.

We strongly believe these recent developments might have boosted the company’s top line in the quarter to be reported. However, this might have been significantly hurt by the coronavirus-led economic stagnations, when healthcare support is primarily focused on COVID-19 treatments.

The Zacks Consensus Estimate of $1.07 for first-quarter earnings suggests a 23.6% decline from the year-ago reported figure.

What Our Model Suggests

Per our proven model, a stock with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), along with a positive Earnings ESP, has good chances of beating estimates. This is not the case as you can see:

Zacks Rank: Quest Diagnostics currently carries a Zacks Rank #3 (Hold).

Earnings ESP: Quest Diagnostics has an Earnings ESP of -14.18%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks Worth a Look

Here are a few medical stocks worth considering as these have the right combination of elements to beat on earnings this reporting cycle.

Chemed Corporation (CHE - Free Report) has an Earnings ESP of +1.78% and currently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cardinal Health, Inc. (CAH - Free Report) has an Earnings ESP of +1.03% and flaunts a Zacks Rank of 1, at present.

DexCom, Inc. (DXCM - Free Report) has an Earnings ESP of +143.90% and currently carries a Zacks Rank #2.

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