Will 2-Pronged Plan Aid Quest Diagnostics (DGX) Q2 Earnings?

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Quest Diagnostics Incorporated DGX is scheduled to report second-quarter 2019 earnings on Jul 23, before the opening bell.

In the las t report ed quarter, the company's earnings exceeded the Zacks Consensus Estimate by 2.94%, the average trailing four-quarter positive surprise being 0.74%.

Let's take a look at how things are shaping up prior to this announcement.

Factors at Play

Quest Diagnostics seems well-aligned with its two-pronged agenda to accelerate growth and drive operational excellence. Per its new long-term progress outlook, revenue increase for the 2017-2020 period is expected to be 3-5% with 1-2% rise projected from acquisitions. Earnings for the same time frame are anticipated to surge faster than the top line in the mid-to-high single-digit range. This should get reflected through the company's second-quarter performance as well.

Per the company, its frequently growing partnerships with other health care leaders and prudent buyouts are creating promising opportunities for the top and the bottom line while at the same time, the patient experience is improved and the overall cost of care, reduced.

Quest Diagnostics Incorporated Price and EPS Surprise

Quest Diagnostics Incorporated Price and EPS Surprise

Quest Diagnostics Incorporated price-eps-surprise | Quest Diagnostics Incorporated Quote

Through the last few quarters, the company satisfied all the five elements of its growth acceleration strategy and strongly expects this momentum to get reflected in the upcoming quarterly results.

Going by the first element of its growth strategy (to further strengthen the top line by 2% through strategically accretive acquisitions), the company noted that the nine deals it had completed since the beginning of last year, positioned the company to meet its 2019 target.This includes the recently-completed takeover of the clinical laboratory services business of Boyce and Bynum.

These transactions are likely to garner favorable numbers in the to-be-reported quarter.

Accounting for the second element of the company's key growth plans, which is to expand relationships with hospital health systems, Quest Diagnostics entered 2019 on a bullish note. Banking on its in-network status with UnitedHealthcare, Horizon Blue Cross Blue Shield of New Jersey and Blue Cross Blue Shield of Georgia, the company is estimating a billion-dollar opportunity for itself. This apart, it recently signed a partnership deal with Catholic Health Services (CHS), an integrated health care delivery system with 24% market share on Long Island. This strategic inorganic move is expected to contribute to the company's top line through the to-be-reported quarter.

With respect to the third element of offering its diagnostic innovation a wider access, the company has been witnessing growth in prescription drug monitoring, QuantiFERON, tuberculosis test and non-invasive prenatal screening. Besides, per the company, the recently-inked consolidation deals are predicted to upgrade its capabilities in advanced diagnostics, especially in the areas of Women's Health and Infectious Disease.

About the fourth element of the company's growth strategy, which is to provide ample choices to consumers, the company's relationship with Walmart has already started adding value to this end with higher patient traffic. Moreover, the company's alliance with Safeway currently has more than 200 patient service centers across its retail store locations. This positive aspect will probably be highlighted in second-quarter earnings performance.

The fifth element of Quest Diagnostics' growth policies indicates its support to population health within analytics and extended care services. In this regard, the company recently launched Quest Clinical Trial Connect, a patient recruitment service.

Apart from these five elements, in terms of the company's efforts to ramp up its operating efficiency, Quest Diagnostics endeavors to gain productivity. This, in turn, enabled it to effectively manage headcount growth.

We expect these key active catalysts to replicate the company's success story in its impending quarterly results. Also, a better-than-expected performance is likely to push up the same primary metrics as in the preceding quarters.

We strongly believe that all these recent developments might have significantly favored the company's top line in the second quarter.

On the flip side, Quest Diagnostics witnessed lower-than-expected growth in prescription drug monitoring marketplace due to policy changes opposed by some payers to restrict testing in the last reported quarter. The company also bore the brunt of a rapid decline in genotyping and resistance testing in the hepatitis C market. At the same time, revenues from vitamin D testing softened on account of the rising reimbursement rejections.

Overall, the company's full-year adjusted EPS (excluding the impact of amortization expense) is forecast to be more than $6.40. Revenues for 2019 are estimated in the band of $7.60-$7.75 billion (reflecting annualized growth of roughly 1-3%).

What Our Model Suggests

The proven Zacks model clearly indicates that a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has maximum chances of beating estimates if it also has a positive  Earnings ESP .

However, Quest Diagnostics has a Zacks Rank #4 and an Earnings ESP of 0.00%, a combination that fails to conclusively indicate an earnings beat. You can uncover the best stocks to buy or sell before they're reported with our  Earnings ESP Filter .

The Zacks Consensus Estimate for second-quarter earnings of $1.70 implies a 2.86% decline from the year-ago reported figure.

We caution against the Sell-rated stocks (Zacks Rank of 4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Worth a Look

Here are a few medical stocks worth considering from the same space as these consist of the right mix of elements to surpass expectations this time around.

DENTSPLY SIRONA Inc. XRAY has an Earnings ESP of +6.94% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Thermo Fisher Scientific Inc. TMO has an Earnings ESP of +0.42% and a Zacks Rank #2.

Stryker Corporation SYK has an Earnings ESP of +0.24% and a Zacks Rank of 2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: TMO , SYK , DGX , XRAY

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