Quest Diagnostics Inc.‘s DGX legacy base business is significantly advancing its growth strategy with novel testing solutions and enhanced relationships with health systems. Investments in advanced diagnostics are driving faster growth across the company’s customer channels.
However, rising debt and stiff competition are a concern for its operations.
In the past year, this Zacks Rank #3 (Hold) stock has gained 2.4% compared with the industry’s 16.2% rise and 25.6% growth of the S&P 500 composite.
The renowned provider of diagnostic information services has a market capitalization of $15.28 billion. Quest Diagnostics earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 3.67%.
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) as a result of increased demand for its services due to collaborations with health plans, hospitals and physicians. In 2023, the company’s strong ties with health plans played a crucial role in its growth, resulting in a significant increase in revenues from health plans compared with last year’s levels.
Base business revenues increased nearly 6% in the first quarter of 2024. Given its strong commercial focus on physicians and hospitals and broad health plan access, Quest Diagnostics is in a strong position to capitalize on the sustained high healthcare utilization rates and can continue driving new customer growth.
Strong Potential of Advanced Diagnostics: In first-quarter 2024, the company posted double-digit revenue growth across multiple clinical areas, including brain health, women’s health, particularly prenatal and hereditary genetics and advanced cardiometabolic health.
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Quest Diagnostics’ Alzheimer’s disease portfolio, which features the AD-Detect blood testing services and the CSF Tests for diagnosing and monitoring, is one of the most comprehensive in the fast-evolving field of Alzheimer’s care. The company will continue to invest in the portfolio, with plans to introduce additional biomarkers later this year and expand the overall menu.
Accelerate Growth Strategy Bodes Well: Quest Diagnostics is undertaking substantial progress on its strategy to drive top-line growth across core customer channels and improve its profitability.
Throughout last year, the company advanced its growth strategy with innovative testing solutions, new and expanded relationships with health systems and a robust pipeline of M&A and professional lab services opportunities. In 2024, Quest Diagnostics is set to launch its first MRD test to physicians following the acquisition of Haystack Oncology. In the first quarter, the company announced clinical trial collaborations with the Rutgers Cancer Institute, Alliance Foundation trials and TriSalus Life Sciences, demonstrating the potential of this innovative technology to help support clinical research.
Downsides
Escalating Debt Level: The company’s solvency level is a concern, with long-term debt totaling $3.80 billion at the end of the first quarter of 2024, while the cash and cash equivalent balance was only $474 million. The current portion of the debt also stood much higher at $906 million.
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 with hospital-affiliated labs primarily based on the quality of service.
Estimate Trend
The Zacks Consensus Estimate for Quest Diagnostics’ 2024 earnings per share (EPS) has moved up from $8.75 to $8.78 in the past 60 days.
The consensus estimate for the company’s 2024 revenues is pegged at $9.44 billion. The figure suggests a 1.9% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Align Technology, Inc. ALGN, ResMed Inc. RMD and Boston Scientific Corporation BSX.
Align Technology, carrying a Zacks Rank of 2 (Buy), reported first-quarter 2024 adjusted EPS of $2.14, beating the Zacks Consensus Estimate by 8.1%. Revenues of $997.4 million outpaced the consensus mark by 2.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Align Technology has a long-term estimated growth rate of 6.9%. ALGN’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 5.9%.
ResMed reported third-quarter fiscal 2024 adjusted EPS of $2.13, beating the Zacks Consensus Estimate by 10.9%. Revenues of $1.19 billion surpassed the Zacks Consensus Estimate by 1.9%. The stock carries a Zacks Rank #2.
ResMed has a long-term estimated growth rate of 10.9%. RMD’s earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 2.8%.
Boston Scientific reported first-quarter 2024 adjusted EPS of 56 cents, beating the Zacks Consensus Estimate by 9.8%. Revenues of $3.86 billion surpassed the Zacks Consensus Estimate by 4.9%. It currently carries a Zacks Rank #2.
Boston Scientific has a long-term estimated growth rate of 12.5%. BSX’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 7.5%.
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