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Quest Diagnostics (DGX) to Post Q1 Earnings: What's in Store?

Quest Diagnostics DGX is set to release first-quarter 2023 results on Apr 27 before the opening bell.

The company posted adjusted earnings per share (EPS) of $1.98 in the last reported quarter, which surpassed the Zacks Consensus Estimate by 4.21%. Quest Diagnostics beat earnings estimates in all the trailing four quarters, the average surprise being 7.01%.

Let’s look at how things have shaped up before this announcement.

Factors at Play

Quest Diagnostics is likely to have benefited from the continued sales rebound in the non-COVID-19 base business as economic activities return to pre-pandemic levels.

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Throughout last year, the company made investments to strengthen its bioinformatics capabilities, including genomic sequencing services, hereditary genetic testing and pharma services. Quest Diagnostics’ continued investments in women’s health sales force are likely to have maintained strong growth in prenatal genetics in the first quarter of 2023.

Quest Diagnostics Incorporated Price and EPS Surprise

Quest Diagnostics Incorporated Price and EPS Surprise
Quest Diagnostics Incorporated Price and EPS Surprise

Quest Diagnostics Incorporated price-eps-surprise | Quest Diagnostics Incorporated Quote

In late 2022, DGX acquired the select assets of LabCare Plus, the outreach laboratory services business of the non-profit integrated health system, Summa Health. In March 2023, Quest Diagnostics acquired Northern Light Health’s outreach laboratory business under strategic laboratory collaboration, to professionally manage nine of its hospital laboratories. These newly added businesses are expected to have contributed to the company’s top line in the to-be-reported quarter.

Of late, Quest Diagnostics has made several significant organic and inorganic developments. Last month, the company unveiled Advanced Transplant Diagnostic Services for domestic patients (excluding Alaska and Hawaii). This comprehensive suite features more than 170 advanced diagnostics and support services for broader access to laboratory tests for transplanting solid organs, human cells and tissues.

In February 2023, Quest Diagnostics teamed up with the Pennsylvania-based integrated healthcare system Tower Health, to provide laboratory supply-chain expertise. This includes the purchase of capital equipment, supplies and reagents.

Quest Diagnostics continues to extend and renegotiate health plan agreements and sees increased volumes and pricing from contracts. The company registered some of the strongest order volumes of lab tests to date via its new digital platform, Questhealth.com. We expect all these developments to have positively contributed to DGX’s top line in the first quarter.

Despite healthcare systems facing major margin pressures due to labor challenges and a shift from inpatient to outpatient care, Quest Diagnostics is expected to have maintained a strong M&A pipeline through lab management, population health analytics, mobile services, and/or by monetizing the acquiree’s outreach business.

However, the base business is likely to have been impacted by continued inflationary headwinds and wage pressures. Quest Diagnostics has been closely managing the cost structure through its Invigorate program. By putting efforts toward lab platform consolidation and greater use of automation and artificial intelligence, the company attempted to drive additional productivity improvements and expand margins in its base business.

The Zacks Consensus Estimate for this segment’s revenues is pegged at $2063 million, suggesting a 4% drop from the year-ago quarter’s reported figure.

In the to-be-reported quarter, Quest Diagnostics’ COVID-19 testing revenues are expected to have declined year over year, due to a robust year-ago comparison. On its last earnings call, DGX reported a continuous reduction in COVID-19 testing volumes.

The demand for the company’s COVID-19 molecular testing volumes also showed a downward trend in January, following a modest increase throughout the fourth quarter. This decline in COVID-19 diagnostic testing demand is likely to have significantly impacted sales in the first quarter.

The Zacks Consensus Estimate for the segment’s revenues is pegged at $70 million, suggesting a 61.9% drop from the year-ago quarter’s reported figure.

On a positive note, CMS increased Medicare reimbursement for specimen collection fees for the first time in nearly 40 years. This is likely to have benefited the company in the first quarter, through higher revenues from phlebotomy services provided to its health plan customers.

Q1 Estimates

The Zacks Consensus Estimate for Quest Diagnostics’ first-quarter 2023 revenues is pegged at $2.2 billion, suggesting a decline of 15.6% from the year-ago reported figure.

The consensus estimate for its first-quarter 2023 EPS of $1.97 indicates a 38.8% fall 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 a higher chance of beating estimates. However, that is not the case here, as you can see below:

Earnings ESP: Quest Diagnostics has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3.

Stocks Worth a Look

Here are some medical stocks worth considering, as these have the right combination of elements to post an earnings beat this quarter.

Align Technology ALGN has an Earnings ESP of +2.38% and a Zacks Rank #2. The company will release first-quarter 2023 results on Apr 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology has an expected long-term earnings growth rate of 16%. ALGN has an earnings yield of 2.28% compared with the industry’s 4.61%.

Henry Schein HSIC has an Earnings ESP of +0.99% and a Zacks Rank #2. Henry Schein is expected to release first-quarter 2023 results on May 2.

HSIC has an expected long-term earnings growth rate of 8.10%. The company’s earnings yield of 6.43% compares favorably with the industry’s 4.61%.

BioRad Laboratories BIO currently has an Earnings ESP of +0.16% and a Zacks Rank #1. BioRad is scheduled to release first-quarter 2023 results on May 4.

BioRad has an expected earnings growth rate of 12.76% for the next year. BIO has an earnings yield of 3.32% compared with the industry’s -2.92%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report

Align Technology, Inc. (ALGN) : Free Stock Analysis Report

Henry Schein, Inc. (HSIC) : Free Stock Analysis Report

Bio-Rad Laboratories, Inc. (BIO) : Free Stock Analysis Report

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