On Feb 7, we upgraded
) - a leading player in the diagnostic testing market - to
Neutral following a decent fourth-quarter 2013. In spite of
challenges with testing volume, we are optimistic about the
company's ongoing restructuring initiatives as well as its focus
on high potential areas such as core diagnostic information
Why the Upgrade?
Quest Diagnostics is witnessing continuous challenges with
testing volume. Moreover, lower healthcare utilization and
reimbursement pressure from government and other payers continue
to pose threats.
However, after several quarters of disappointing performances,
amid industry-wide headwinds on reimbursement and utilization,
Quest Diagnostics managed to post a decent fourth-quarter 2013,
beating on both the top and the bottom line. The quarter's
adjusted earnings per share (EPS) from continuing operations of
$1.03 surpassed the Zacks Consensus Estimate by 9.6% and the
year-ago earnings by 2%. Although, revenues from continuing
operations for the quarter were down 1.0% year over year to $1.76
billion, the figure remained marginally ahead of the Zacks
Consensus Estimate of $1.73 billion.
Concerns also linger about a poor 2014 revenue outlook,
indicating that the industry trend does not seem likely to
improve in the near future. However, we are upbeat about the
long-term growth drivers which should reflect positive outcomes
with time. With baby boomers moving into Medicare, the company is
expected to be benefited from continued population growth and
The esoteric testing business is expected to grow at a faster
pace as physician medicine drives demand for advanced esoteric
tests. Despite the slow uptake of the Affordable Care Act, the
company expects more insured lives to enter the market each year.
Moroever, with newer medical guidelines, the company expects to
see increasing uptake of tests like Hepatitis C. Accordingly,
over the long haul, we expect Quest Diagnostics, as a provider of
low-cost diagnostic information services, to be able to garner
more growth in this high-potential but still under-penetrated
Quest Diagnostics now carries a Zacks Rank #3 (Hold).
Med-Tech Stocks That Warrant a Look
While we prefer to avoid Quest Diagnostics until further signs
of improvement in the company's performance, better-placed
medical device stocks worth a look are
Almost Family Inc.
DaVita HealthCare Partners Inc.
Addus HomeCare Corporation
). While AFAM holds a Zacks Rank #1 (Strong Buy), DVA and ADUS
carry a Zacks Rank #2 (Buy).
ADDUS HOMECARE (ADUS): Free Stock Analysis
ALMOST FAMILY (AFAM): Free Stock Analysis
QUEST DIAGNOSTC (DGX): Free Stock Analysis
DAVITA HEALTHCR (DVA): Free Stock Analysis
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