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Quest Diagnostics Banks on Alliances, Long-Term View Solid


On Feb 6, we issued an updated research report on Quest Diagnostics, Inc. DGX, a major commercial laboratory services provider. The stock carries a Zacks Rank #2 (Buy).

Shares of Quest Diagnostics have outperformed the broader industry over the past year. The stock has gained 8.1% against the broader industry’s 2.6% decline.

We are encouraged to note that both earnings and revenues increased year over year during the recently-reported fourth quarter. Also, the company’s bottom line exceeded the Zacks Consensus Estimate.

Quest Diagnostics Incorporated Price

Quest Diagnostics Incorporated Price | Quest Diagnostics Incorporated Quote

Incidentally, Quest Diagnostics has witnessed significant growth through infectious disease testing, prescription drug monitoring and wellness business. It is currently refocusing on core diagnostic information services business and disciplined capital deployment.

The company’s several new collaborations with hospitals and integrated delivery networks continue to act as major growth drivers. We are looking forward to the company’s recently-closed buyout of Mobile Medical Examination Service, a national provider of home-based health risk assessments and related services. This apart, the 2018 guidance looks promising with an indication for this bullish trend to continue.

Later in 2016, Quest Diagnostics came up with an upgraded long-term growth outlook (beyond 2017) based on its new and extended two-point strategy to generate shareholder value, accelerate growth and drive operational excellence.

The company expects 3-5% revenue growth for the period from 2017 to 2020. Earnings for the same time frame are expected to better revenues at a faster rate in the mid-to-high single-digit range. Per the company, its increasing number of partnerships with other health care leaders is creating ample opportunities for the top and bottom-line growth while simultaneously improving the patient experience and reducing the overall cost of care.

After suffering several quarters of dull volumes, the company has finally started to see improvement in terms of both volume and pricing. However, sustainability of this progress is still doubted. Further, reimbursement woes remain.

Also, Quest Diagnostics is highly disappointed with the recent CMS (Centers for Medicare & Medicaid Services) proposal related to the Protecting Access to Medicare Act. In December 2017, the company as a key member of the American Clinical Laboratory Association came forward to support a lawsuit against the Acting Secretary of the US Department of Health and Human Services. The lawsuit charged that the CMS, operating under the HHS purview, has failed to follow a congressional directive to implement a market-based laboratory payment system.

Other Stocks to Consider

A few other top-ranked stocks in the broader medical space are Abiomed ABMD, athenahealth ATHN and Cardinal Health CAH, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abiomed has an expected long-term growth rate of 31.5%. The stock has soared 61.8% over the last six months, surpassing the broader industry’s performance.

athenahealth has a projected long-term growth rate of 22.3%. The stock has gained 11.8% over the last three months, ahead of the industry’s rise.

Cardinal Health has an expected long-term growth rate of 8.5%. In the last 30 days, the stock has climbed 3.4%, higher than the industry’s increase.

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