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Reasons to Retain Quest Diagnostics (DGX) Stock for Now

Quest Diagnostics Incorporated DGX has been gaining on the back of its growth within base volumes. The optimism led by solid fourth-quarter 2022 performance and its tactical approaches to accelerate growth also buoy optimism. Headwinds resulting from stiff competition and a soft volume environment are major downsides.

In the past year, the Zacks Rank #3 (Hold) stock has lost 1.4% compared with the 23.6% decline of the industry and the 15.1% fall of the S&P 500.

The renowned provider of diagnostic information services has a market capitalization of $15.52 billion. The company projects 1.8% growth for 2024 and expects to witness continued improvements in its business. Quest Diagnostics surpassed the Zacks Consensus Estimates in all the trailing four quarters, delivering an earnings surprise of 7.01%, on average.

Let’s delve deeper.


Q4 Upsides: Quest Diagnostics reported better-than-expected fourth-quarter earnings and revenues. During the reported quarter, the base business registered growth and the company also ramped up investments to accelerate growth in the base business, particularly in advanced diagnostics and direct-to-consumer testing. In advanced diagnostics, the company generated strong double-digit growth in prenatal genetics and pharma services and launched a solid tumor expanded panel as a laboratory-developed test.

To help offset inflationary pressures, it has continued to pursue its operational excellence strategy and has been closely managing the cost structure through the company’s invigorate initiatives.

Base Volume Improves: Quest Diagnostics’ base testing volumes or base business refers to testing volumes, excluding COVID-19 testing. During the reported quarter, base business revenue was up 8.9%. The company is increasing efforts to drive productivity and expand margins in the base business. The company continued to drive additional productivity improvements with lab platform consolidation and greater use of automation and artificial intelligence. In the fourth quarter, the company continued to gain traction with value-based contracts within health plans. The company started benefiting from incentives related to these value-based contracts, which helped demonstrate the value of these strategic relationships.

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Zacks Investment Research

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Accelerate Growth Strategy Bodes Well: Quest Diagnostics continues to progress in terms of its tactical approaches to accelerate growth, the first part of its two-point strategy, raising our optimism. In terms of growth through M&A, the company has announced an outreach lab purchase from Ohio-based Summa Health. Quest Diagnostics has also announced a professional lab services relationship with Southwest Florida-based Lee Health to provide supply-chain expertise for five hospitals owned by Lee Health and selected outpatient centers.

To accelerate growth through health plan access, the company continued to gain traction with value-based contracts, where it sees higher growth than traditional contracts.


Stiff Competition: Quest Diagnostics faces intense competition, primarily from other commercial laboratories and hospitals. Hospitals control an estimated 60% of the diagnostic test market, compared to Quest Diagnostic’s 15% share. While pricing is an important factor in choosing a testing lab, hospital-affiliated physicians expect a high level of service, including the 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.

Soft Volume Environment: 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 11.2% year over year in the fourth quarter. Revenues per requisition declined 5.1% year over year due to lower COVID-19 molecular testing volume.

Estimate Trend

Quest Diagnostics has been witnessing a positive estimate revision trend for 2023. In the past 90 days, the Zacks Consensus Estimate for its earnings per share has moved 2.6% north to $8.68.

The Zacks Consensus Estimate for 2023 revenues is pegged at $8.96 billion, suggesting a 9.3% decline from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Hologic, Inc. HOLX, Henry Schein, Inc. HSIC and Avanos Medical, Inc. AVNS.

Hologic, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 15.2%. HOLX’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 30.6%.

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

Hologic has gained 1.7% against the industry’s 17.5% growth in the past year.

Henry Schein, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 8.1%. HSIC’s earnings surpassed estimates in three of the trailing four quarters and matched the same in the other, the average beat being 2.9%.

Henry Schein has lost 12.4% compared with the industry’s 10.9% decline in the past year.

Avanos, carrying a Zacks Rank #2 at present, has an estimated growth rate of 1.8% for 2023. AVNS’ earnings surpassed estimates in all the trailing four quarters, the average beat being 11%.

Avanos has lost 13.7% compared with the industry’s 17.5% decline in the past year.

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