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Quest Diagnostics Long-Term View Solid, Reimbursement a Woe


On Mar 7, we issued an updated research report on Quest Diagnostics, Inc. DGX. Amid huge reimbursement concerns, the company focuses on potentially strong areas. The stock carries a Zacks Rank #3 (Hold).

Shares of Quest Diagnostics have outperformed the industry over the past year. The stock has gained 6.6% against the broader industry’s 2.2% decline.

We are encouraged to note that in recent times, Quest Diagnostics has witnessed significant growth through infectious disease testing, prescription drug monitoring and wellness business. The company lends attention to core diagnostic information services business as well as disciplined capital deployment.

Its 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 issued promises this bullish trend to continue.

Later in 2016, Quest Diagnostics provided 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.

This major commercial laboratory services provider expects 3-5% revenue growth for the period from 2017 to 2020. However, the bottom-line rise is expected to better the top line at a faster rate in mid-to-high single-digit range. Per the company, its increasing partnership strength with other health care leaders is creating ample opportunities for earnings and revenue boost while simultaneously, improving the patient experience as well as reducing the overall cost of care.

After enduring several quarters of dull volumes, the company has finally noticed 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 supported a lawsuit slapped on the acting secretary of the US Department of Health and Human Services. The complaint filed against CMS (operating under the HHS purview), charged it with its failure to follow a congressional directive to implement a market-based laboratory payment system.

Stocks to Consider

Some better-ranked stocks in the broader medical sector are Bio-Rad Laboratories BIO, PetMed Express PETS and PerkinElmer PKI.

Bio-Rad Laboratories sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The company has a long-term expected earnings growth rate of 20%.

PetMed has a long-term expected earnings growth rate of 10% and a Zacks Rank of 1.

PerkinElmer has a long-term expected earnings growth rate of 12.3%. The stock carries a Zacks Rank #2 (Buy).

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