On May 16, 2014, we issued an updated research report on
Quest Diagnostics, Inc.
) - a major commercial laboratory services provider. The current
market environment continues to pose challenges in the form of
lower healthcare utilization and Medicare cuts. In addition,
pressure on volume and pricing constitute the primary risk for
Quest Diagnostics. However, we are positive on current favorable
The company recently reported poor first-quarter 2014 results.
The quarter's adjusted earnings per share from continuing
operations of 84 cents missed both the Zacks Consensus Estimate and
the year-ago number by 5.6%. On the other hand, though revenues
from continuing operations dropped 2.3% year over year to $1.75
billion, the figure came in line with the Zacks Consensus
Concerns also loom large with regard to an average 2014 revenue
outlook, indicating that the industry trend does not seem likely to
improve in the near future. Although we hold a favorableview on the
company's massive organizational restructuring strategy,
implemented since Jan 2013 to increase operational efficiency and
restore growth, near-term visibility remains a matter of
Nevertheless, of late, Quest Diagnostics has been focusing on
high-potential areas such as gene-based esoteric testing for
cancer, cardiovascular disease, infectious disease and neurological
disorders. As part of this strategy, the company acquired Summit
Health and Solstas Lab Partners Group this year. These deals are
consistent with Quest Diagnostics' aim of becoming a global leader
in diagnostic and healthcare services.
We are also upbeat about the long-term growth drivers which are
expected to reflect positive outcomes in the upcoming period. With
baby boomers increasingly moving into Medicare, the company should
benefit from continued population growth and favorable
demographics. Over the long haul, we expect Quest Diagnostics, as a
provider of low-cost diagnostic information services, to be able to
garner greater growth in this high-potential but still
under-penetrated niche market. The stock currently carries a Zacks
Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked stocks in the broader healthcare space that
are worth a look include
Natus Medical Inc.
). All of these three stocks carry a Zacks Rank #2 (Buy).
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