Yahoo Finance Is It Apt to Hold Quest Diagnostics (DGX) Stock for Now?
Quest Diagnostics Inc.’s DGX consistent volume growth driven by strategic collaborations is poised to drive growth in the coming quarters. In Advanced Diagnostics, the company is making strides with the Haystack minimal residual disease (MRD) test. The implementation of operational efficiency initiatives across the organization also instills optimism.
Meanwhile, concerns mount over the impact of lower COVID-19 testing revenues on the company’s growth. The growing debt level is also alarming.
In the past year, this Zacks Rank #3 (Hold) stock has decreased 2.2% against the industry’s 16.4% rise and the 26.1% growth of the S&P 500 composite.
The renowned provider of diagnostic information services has a market capitalization of $15.58 billion. The company’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 3.7%.
Let’s delve deeper.
Tailwinds
Growth Momentum in the Core Business: Quest Diagnostics has been experiencing robust volume growth in its core business (excluding COVID-19 testing) as a result of the increased demand for its services due to collaborations with health plans, hospitals and physicians. Additionally, the company is benefiting from the ongoing return to care. Given its strong commercial focus on physicians and hospitals and broad health plan access, Quest Diagnostics is well-positioned to capitalize on the sustained high healthcare utilization rates and continue driving new customer growth.
Additionally, Quest Diagnostics is making headway with several promising opportunities within its robust M&A pipeline, with the recent acquisition of Lenco contributing to its first-quarter growth. The company’s strong consumer focus is also capturing growing opportunities in consumer-initiated testing and demand for expanded access to basic health care. Consumer-initiated testing revenues grew in double digits, while base business revenues nearly doubled in the first quarter.
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Strong Potential of Advanced Diagnostics: Quest Diagnostics’ highly specialized Advanced Diagnostics services posted double-digit revenue growth in the first quarter of 2024 across multiple clinical areas, including brain health, women's health, particularly prenatal and hereditary genetics, and advanced cardiometabolic health. Its Alzheimer's disease offerings, featuring AD-Detect blood testing services and CSF Tests for diagnosing and monitoring, are one of the most comprehensive in the fast-evolving field of Alzheimer's care.
In addition, Quest Diagnostics is bolstering its oncology offering with a strategic investment in higher-growth MRD testing. The company validated the Haystack MRD test, generating interest from nearly 20 leading cancer institutions for its Haystack MRD Early Experience Program. The STEP500 somatic tumor sequencing service is also gaining interest from large cancer centers, positioning DGX as a leader in the MRD space and other rapidly growing molecular genomics and oncology markets.
A Strategic Imperative to Drive Operational Excellence: The company strategically deploys automation and AI to improve quality, service, efficiency and the workforce experience. The Invigorate initiative 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.
Quest Diagnostics recently automated elements of the specimen preparation process in several labs and expects to deploy these systems across other sites throughout the year. During 2023, Quest Diagnostics completed the front-end automation upgrades in its Pittsburgh and Dallas laboratories, which are expected to improve quality and productivity.
Headwinds
Low COVID-19 Testing Revenues Drag the Top Line: Quest Diagnostics’ revenues from COVID-19 testing plummeted by nearly 85% last year, affecting some key metrics’ performance. The company anticipates a $175 million decline in COVID-19 revenues for 2024, partially offsetting the growth from the base business.
Escalating Debt Level: Quest Diagnostics faces solvency worries with a high long-term debt of $3.80 billion and a cash and cash equivalent balance of only $474 million at the end of the first quarter of 2024. The current portion of the debt is substantial at $906 million. The company’s current ratio of 0.97 stands below the industry average of 1.92, raising concerns about its ability to meet its immediate debt obligations.
Estimate Trend
The Zacks Consensus Estimate for DGX’s 2024 earnings per share (EPS) has moved to $8.79 from $8.78 in the past 30 days.
The consensus estimate for the company’s 2024 revenues is pegged at $9.45 billion. This suggests a 2.1% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Hims & Hers Health HIMS, Medpace MEDP and ResMed RMD.
Hims & Hers Health’s earnings are expected to surge 272.7% in 2024 compared with the industry’s 17.7%. HIMS’ earnings surpassed estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 79.2%. Its shares have surged 181.7% against the industry’s 26.4% decline in the past year.
HIMS sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Medpace, carrying a Zacks Rank #2 (Buy) at present, has an estimated 2024 earnings growth rate of 27.1% compared with the industry’s 12.7%. Shares of MEDP have rallied 81% compared with the industry’s 6.1% growth over the past year.
MEDP’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.8%. In the last reported quarter, it delivered an earnings surprise of 30.6%.
ResMed, also carrying a Zacks Rank #2 at present, has an estimated fiscal 2024 earnings growth rate of 19.6% compared with the industry’s 11.5%. Shares of RMD have dropped 14.3% compared with the industry’s 1.8% fall over the past year.
RMD’s earnings surpassed estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 2.8%. In the last reported quarter, it delivered an earnings surprise of 10.9%.
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Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report
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