Yahoo Finance Quest Diagnostics' (DGX) Contract Wins Aid Amid Volume Woes
Quest Diagnostics DGX has been focusing on areas with high potential. A positive demography and cost reduction initiatives are the other upsides. Over the past several quarters, the overall soft industry trends leading to a low-volume environment have acted as a dampener for Quest Diagnostics. The stock carries a Zacks Rank #3 (Hold).
In the past year, Quest Diagnostics has outperformed its industry. The stock has declined 0.3% compared with 18.3% decline of the industry.
Quest Diagnostics reported better-than-expected first-quarter earnings and revenues. The base business registered double-digit growth, driven by strong performance across physician and health system lab services. Health plan volumes continued to grow faster than the overall business. This trend is directly related to the company’s ongoing efforts to partner with health plans to actively steer patients to high-quality, lower-cost providers like Quest, thereby saving money for the health plan, employers and plan members.
In the first quarter, Quest Diagnostics witnessed success with contract wins in its reference and professional lab services offerings. The company is helping Pennsylvania-based Tower Health manage its laboratory supply chain in addition to performing reference testing.
In addition, to help offset inflationary pressure, the company has been pursuing an operational excellence strategy and closely managing the cost structure through its Invigorate initiatives.
In terms of Protecting Access to Medicare Act (PAMA), the company is optimistic about the recently introduced federal laboratory legislation, Saving Access to Laboratory Services Act (SALSA). The company believes that SALSA has the potential to fix PAMA permanently.
On the flip side, in the first quarter of 2023, Quest Diagnostics reported a 10.7% decline in the top line. COVID-19 testing revenues nosedived 80% from the prior-year quarter. The company performed approximately 1.3 million molecular tests in the quarter, down approximately 5 million from the first quarter of 2022. Revenue per requisition declined 7.7% year over year due to lower COVID-19 molecular volume.
Diagnostic information services revenues declined 11.1% from the prior year, reflecting lower year-over-year revenues from COVID-19 testing services. Selling, general and administrative expenses rose 3.3% in the quarter under review. The adjusted operating margin contracted 644 basis points year over year.
Further, pressure on volume, owing to a difficult macroeconomic situation and pricing, constitutes the primary risk for Quest Diagnostics. Total volume, measured by the number of requisitions, was down 3.8% year over year in the first quarter. Revenues per requisition declined 7.7% year over year due to lower COVID-19 molecular testing volume.
Key Picks
Some better-ranked stocks in the overall healthcare sector are Penumbra PEN, Lantheus LNTH and Neuronetics STIM. While Penumbra and Lantheus sport a Zacks Rank #1 (Strong Buy), Neuronetics carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Penumbra’s stock has risen 130% in the past year. The Zacks Consensus Estimate for Penumbra’s earnings per share (EPS) has increased from $1.47 to $1.56 for 2023 and from $2.51 to $2.56 for 2024 in the past 30 days.
PEN’s earnings beat estimates in each of the trailing four quarters, the average surprise being 109.42%. In the last reported quarter, the company registered an earnings surprise of 109.09%.
The Zacks Consensus Estimate for Lantheus’ 2023 EPS has increased from $4.98 to $5.60 in the past 30 days. Shares of the company have improved 25% in the past year against the industry’s 31.1% decline.
LNTH’s earnings beat estimates in each of the trailing four quarters, the average surprise being 25.77%. In the last reported quarter, the company recorded an earnings surprise of 13.95%.
Estimates for Neuronetics’ loss per share have narrowed from $1.32 to $1.29 for 2023 in the past 30 days. Shares of the company have declined 12% in the past year compared with the industry’s 2.6% growth.
STIM’s earnings beat estimates in each of the trailing four quarters, the average surprise being 19.61%. In the last reported quarter, Neuronetics delivered an earnings surprise of 2.56%.
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Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report
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