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Here’s Why You Should Hold On to Quest Diagnostics (DGX) Now


With a market capitalization of approximately $14.96 billion, Quest Diagnostics’ DGX consistent efforts to refocus on core diagnostic information services business and disciplined capital deployment are expected to boost top-line results.

Which Way are the Estimates Treading?

For the current quarter, the Zacks Consensus Estimate for earnings is pegged at $1.68, reflecting an increase of 20.9% on a year-over-year basis. The same for revenues is pegged at $1.95 billion, reflecting an increase of 1.1% year over year.

For 2018, the Zacks Consensus Estimate for revenues is pegged at $7.70 billion, reflecting a decline of 0.1%. However, the same for earnings is pegged at $6.58 per share, up 21.9% year over year.

The stock currently has a Zacks Rank #3 (Hold). Here, we take a quick look at the primary factors that have been plaguing Quest Diagnostics and discuss the prospects that ensure near-term recovery of the stock.

What's Deterring Quest Diagnostics?

In the last couple of years, Quest Diagnostics faced several reimbursement issues, hurting its revenues. Turning to PAMA (Protecting Access to Medicare Act), first-quarter 2018 was opening quarter, operating under the clinical IP schedule, which accounted for approximately 12% of the company’s revenues last year. Quest Diagnostics still expected the impact of the final rates under PAMA to be a reduction of approximately 4% in revenues in 2018, approximately 10% in both 2019 and 2020.

Consequently, Quest Diagnostics underperformed the industry in a year's time. The company’s shares have returned 2.3% compared with the industry's increase of 25.3%. The current level is lower than the S&P 500’s return of 17.7%.

Why Should You Still Hold?

Quest Diagnostics has been focusing on areas with high potential such as gene-based esoteric testing for cancer, cardiovascular disease, infectious disease and neurological disorders. The company encouragingly pointed out that, from a shrinking business just three years back (by more than 4%) leading to an organic revenue decline of 2% in 2014, Quest Diagnostics has efficiently rebounded.

Gene-based esoteric testing revenues continue to grow at a rapid rate, with significant growth observed in infectious disease testing, prescription drug monitoring and wellness business. Beside, strong growth has been experienced in the company’s infectious disease testing and prescription drug monitoring.

Of late, major developments included the company’s progress in prescription drug monitoring, QuantiFERON and non-invasive prenatal screening. In advanced diagnostics, Quest Diagnostics made strong progress with its new center of excellence in precision medicine oncology in Texas. This apart, with the acquisition of Med Fusion, the company has seen an acceleration of growth of its tumor panels.

Want More From the MedTech Space?

Some better-ranked stocks in the broader medical space are Integer Holdings Corporation ITGR, Intuitive Surgical ISRG and Masimo Corporation MASI.

Integer Holdings’ expected long-term earnings growth rate is 15%. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Intuitive Surgical’s long-term expected earnings growth rate is 14.7%. The stock currently carries a Zacks Rank #2.

Masimo’s long-term expected earnings growth rate is 14.8%. The stock presently has a Zacks Rank #2.

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