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Reasons to Retain Quest Diagnostics (DGX) Stock for Now

Quest Diagnostics Inc. DGX is well-poised for growth in the coming quarters, backed by stronger base volume trends and growth from acquisitions. In the first quarter, Quest Diagnostics’ earnings and revenues were well ahead of estimates. However, COVID-19 testing revenues and a contraction of margins are concerning.

In the past year, this Zacks Rank #3 (Hold) stock has decreased 1.5% compared with the industry’s 17.7% fall and a 2.2% rise of the S&P 500 composite.

The renowned provider of diagnostic information services has a market capitalization of $14.86 billion. Quest Diagnostics has an earnings yield of 6.58% compared with the industry’s yield of 3.89%. The company’s earnings surpassed estimates in all the trailing four quarters, delivering an average surprise of 5.24%.

Let’s delve deeper.


Base Volume Improves: During the reported quarter, DGX’s base business revenues were up 10%, supported by base business volume growth of nearly 8%. Strong volume growth across all customer types is encouraging. This suggests that people are returning to the healthcare system for routine care after delaying the same during the pandemic. The growth trend in health plan volumes is faster than the overall business.

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Zacks Investment Research

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Within health plans, the company continued to gain traction with value-based contracts. Quest Diagnostics started benefiting from incentives related to these value-based contracts, which help demonstrate the value of strategic relationships.

Accelerate Growth Strategy Bodes Well: On Apr 27, the company announced its planned acquisition of Haystack Oncology — an early-stage oncology company, focused on minimal residual disease or minimal residual disease (MRD) testing. The combined strengths of Haystack liquid biopsy technology and DGX’s screening, pathology and sequencing will enable the latter to play a leading role in the fast-growing MRD category.

Further, the company recently completed its strategic laboratory services acquisition with NewYork-Presbyterian. New test volumes started to flow into the company’s New Jersey laboratory earlier this month.  Within advanced diagnostics, the brain health area expanded, banking on Quest AD-Detect Alzheimer's blood test.

Q1 Highlights: In the first quarter, Quest Diagnostics’ earnings and revenues were better than expected. The base business was driven by the strong performance across physician and health system lab services. The company’s ongoing efforts to partner with health plans in actively steering patients to high-quality, lower-cost providers have resulted in volume growth.

Quest Diagnostics had several big wins in the reference business during the quarter. The company extended its professional lab services to Pennsylvania-based Tower Health to manage its laboratory supply chain in addition to performing reference testing.


Lower COVID-19 Testing Revenues: COVID-19 testing revenues declined approximately 80%in the first quarter. The company completed nearly 1.3 million molecular tests in the quarter compared with five million tests in the prior-year quarter.

Mounting Expenses Strain Margins: Despite a year-over-year decrease in the cost of services, the gross margin contracted 388 basis points (bps) in the first quarter. SG&A expenses rose, causing a 644-bps contraction in the adjusted operating margin.

Estimate Trend

Quest Diagnostics has been witnessing a negative estimate revision trend for 2023. The Zacks Consensus Estimate for 2023 earnings per share (EPS) has moved from $8.75 to $8.73 in the past 30 days.

The consensus estimate for the company’s 2023 revenues is pegged at $9.01 billion. This suggests an 8.8% decline from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Zimmer Biomet ZBH, Penumbra PEN and Hologic, Inc. HOLX.

Zimmer Biomet has an earnings yield of 5.85% compared to the industry’s yield of -2.47%. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. Its shares have increased 5.5% against the industry’s 32.6% decline in the past year.

ZBH sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Penumbra, sporting a Zacks Rank of #1 at present, has an estimated growth rate of 64.1% for 2024. The company’s shares have risen 122.8% against the industry’s 0.5% decrease over the past year.

PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.

Hologic, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 4.93% compared to the industry’s yield of -7.06%. Shares of HOLX have risen 5.1% against the industry’s 0.4% fall over the past year.

The company’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.

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Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report

Hologic, Inc. (HOLX) : Free Stock Analysis Report

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