On Feb 1, we downgraded
), a leading player in the diagnostic testing market, to
Underperform based on the company's dismal fourth-quarter 2012
results as well as a disappointing outlook for first quarter
Why the Downgrade?
Quest Diagnostics reported adjusted earnings per share (EPS)
from continuing operations of $1.01, down 15.8% year over year,
missing the Zacks Consensus Estimate of $1.06. This does not
exclude the impact of Hurricane Sandy that reduced the EPS by 6
cents. Revenues from continuing operations for the fourth quarter
were down 4.0% year over year to $1.77 billion, missing the Zacks
Consensus Estimate of $1.82 billion. The first-quarter 2013
guidance was also disappointing and missed our expectation.
Following the release of the fourth-quarter results, the Zacks
Consensus Estimates for 2013 and 2014 have gone down
significantly. We have lowered our 2013 and 2014 revenue
estimates by $153 million and $194 million, respectively.
Moreover, we have also lowered our EPS estimates for 2013 and
2014 by 45 and 37 cents to $3.96 and $4.34, respectively.The
company now carries a Zacks Rank #5 (Strong Sell).
Cause for Concern
The current market environment remains challenging for
QuestDiagnostics due to commercial pricing pressures and Medicare
cuts (including recent pathology service reimbursement
reduction), which may lead to a 3% reimbursement decline in 2013.
Apart from these challenging underlying market conditions, the
company is also witnessing several issues in the form of weak
volume growth, flat pricing and low organic revenue. Although the
last published data showed an increase in physician office visits
after a consistent decline since 2008, the sustainability of this
improvement is still uncertain.
Med-Tech Stocks That Warrant a Look
While we prefer to avoid Quest Diagnostics until we see signs
of improvement in the company's performance, other medical device
stocks worth a look are
Merit Medical Systems, Inc.
). All are Zacks Rank #1 (Strong Buy) stocks.
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