We recently reiterated our Neutral recommendation on
), the leading providers of commercial laboratory services in
North America. While we hold a favorable view regarding the
company's organizational restructuring and efforts to align its
assets with core strategies in order to restore growth, concerns
linger around the overall soft industry trends leading to low
volume growth for the company. The stock currently carries
a Zacks Rank #4 (Sell).
Why at Neutral?
Pressure on volume owing to the difficult macroeconomic
situation and pricing constitute the primary risk for Quest
Diagnostics. In the last reported quarter, volume (measured by
the number of requisitions) inched down 1.1% leading the company
to lower its fiscal 2012 revenue guidance. We are concerned with
the weak volume growth over the last few quarters and expect this
low level of employment and slow growth of commercially insured
lives to continuously impact the company's overall growth until
the economy rebounds.
However, over the past several years, Quest Diagnostics has
been making efforts to align its assets with core strategies. The
latest among these are the divestment of its OralDNA Labs
business to refocus its resources to core diagnostic information
services and the acquisition of UMass outreach labs to
create the company's planned 'lab of the future' . We hold
a favorable view regarding the company's organizational
restructuring in order to restore growth. We also appreciate the
company's current focus on gene-based, esoteric testing, which
has immense potential.
Over the past 30 days, none of the 15 firms covering the stock
made any estimate revision for the current fiscal implying that
they still hold similar views on the stock.
Other Stocks to Consider
While we prefer to remain on the sidelines on Quest
Diagnostics, other medical device stocks worth a look are
Derma Science Inc.
Nxstage Medical Inc.
). Both the stocks carry a Zacks Rank #1 (Strong Buy).
QUEST DIAGNOSTC (DGX): Free Stock Analysis
DERMA SCIENCES (DSCI): Free Stock Analysis
NXSTAGE MEDICAL (NXTM): Free Stock Analysis
To read this article on Zacks.com click here.