Will 5 Elements Drive Quest Diagnostics (DGX) Q3 Earnings?

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Quest Diagnostics DGX is scheduled to report third-quarter 2018 earnings before the opening bell on Oct 23.

In the last reported quarter, the company's earnings were in line with the Zacks Consensus Estimate. However, the bottom line outperformed the consensus mark in two of the trailing four quarters with an average beat of 0.92%.

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

Factors at Play

On a positive note, Quest Diagnostics seems well-aligned with its agenda to accelerate growth and drive operational excellence. Per its new long-term growth outlook (beyond 2017), revenue increase for the period 2017-2020 is expected to be 3-5% with 1-2% growth projected from acquisitions. Earnings for the period are anticipated to rise faster than the top line in the mid-to-high single digit range.

Per the company, its increasing number of partnerships with other health care leaders and strategic acquisitions is creating promising opportunities for the top and bottom-line growth while improving the patient experience and reducing the overall cost of care.

Quest Diagnostics Inc. Price and EPS Surprise

Quest Diagnostics Incorporated Price and EPS Surprise | Quest Diagnostics Incorporated Quote

In second-quarter 2018, the company satisfied all five elements of the above-mentioned growth agenda and strongly expects the momentum to continue, going forward.

Going by the first element of the growth strategy to increase top-line growth by 1-2% through strategically accretive acquisitions. The company recently completed the acquisition of the outreach laboratory services business of Cape Cod Healthcare in Massachusetts.

Also, the buyout of Mobile Medical Examination Service MedXM should fortify Quest Diagnostics' mobile provider capabilities and population health management solutions for health plans. This transaction should further garner favorable results in the to-be-reported quarter.

Further, the company earlier expected to see about 250 basis points of growth from M&As in 2018.

Accounting for the second element of the growth strategy - to expand relationships with hospital health systems - in April, Quest Diagnostics along with four other leading health care organizations, namely Humana, MultiPlan and UnitedHealth Group's Optum and UnitedHealthcare launched a pilot program applying blockchain technology to improve data quality and reduce administrative costs associated with changes to health care provider demographic data.

Considering the third element of the company's growth strategy that offers the broadest access to diagnostic innovation, key growth drivers in the second quarter were prescription drug monitoring, QuantiFERON, tuberculosis test and non-invasive prenatal screening. We are also optimistic about the company's successful execution of its strategy to build an esoteric testing business as well as boost profitability.

Moreover, management projects a huge untapped potential in the hepatitis C screening market. Per Quest Diagnostics, its screening business continues to grow and the company estimates that two-thirds of more than 70 million baby boomers still have to opt for this screening.

About the fourth element of the growth strategy, which is to act as the provider of choice for consumers, the company's relationship with Walmart has already started to add value with higher patient traffic. This positive is expected to reflect in third-quarter earnings performance. The Walmart locations are helping Quest Diagnostics expand into different markets and the company expects to open many more locations throughout the year.

The company is also coming up with increasing number of consumer strategies, including its platform for digital experience, MyQuest.

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

Also, the company's strategy to drive operational excellence is on track. Quest Diagnostics has been converting to electronic requisition and has begun digitalized pick up through Quanum HCP Portal and is adding 200 clients each week. These efforts are directed to drive operational excellence to meet the cost of wage inflation and reimbursement pressure.

We expect these active growth drivers to replicate the company's success story in its upcoming quarterly results. Also, the performance is likely to drive the same primary metrics like the preceding quarter.

We strongly believe all these recent developments to have significantly contributed to the company's top line in the third 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 constrain testing in the last reported quarter. The company also faced the brunt of a faster-than-expected decline in genotyping and resistance testing in the hepatitis C market. At the same time, revenues from vitamin D testing declined due to rising reimbursement rejections.

Overall, third-quarter total revenues are projected to be $1.95 billion, indicating a rise of around 1% from the prior-year quarter.

What Our Model Suggests

Per the proven Zacks model, a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive  Earnings ESP .

Quest Diagnostics has a Zacks Rank #3 and has an Earnings ESP of -0.91%, a combination that does not conclusively show earnings beat for Quest Diagnostics. You can uncover the best stocks to buy or sell before they're reported with our  Earnings ESP Filter .

The Zacks Consensus Estimate for earnings of $1.68 reflects a 20.9% rise on a year-over-year basis.

Conversely, we caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Worth a Look

Here are some medical stocks worth considering as these have the right combination of elements to post an earnings beat in the to-be-reported quarter.

Baxter International Inc. BAX has an Earnings ESP of +0.90% and a Zacks Rank #2. You can see  the complete list of today's Zacks #1 Rank stocks here .

Thermo Fisher Scientific Inc. TMO carries a Zacks Rank #3 and has an Earnings ESP of +0.48%. 

Myriad Genetics, Inc. MYGN has an Earnings ESP of +3.41% and a Zacks Rank #3.

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Quest Diagnostics Incorporated (DGX): Free Stock Analysis Report

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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 , BAX , MYGN , DGX

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