Quest Diagnostics DGX has been focusing on areas with high potential. Positive demography and cost reduction initiatives are the other upsides. The stock carries a Zacks Rank #2 (Buy).
In the past year, Quest Diagnostics has outperformed its industry. The stock has gained 7.9% against a 13.4% decline of the industry.
Quest Diagnostics reported better-than-expected fourth-quarter earnings and revenues. During the reported quarter, the base business registered growth. The company also ramped up investments to accelerate growth in the base business, particularly in areas of advanced diagnostics and direct-to-consumer testing.
During the reported quarter, base business revenues were up 8.9%. The company is increasing efforts to drive productivity and expand margins in the base business. The company continues to drive additional productivity improvements with lab platform consolidation and greater use of automation and artificial intelligence. In Q4, within health plans, the company continues to gain traction with value-based contracts. The company has started to benefit from incentives related to these value-based contracts, which help demonstrate the value of these strategic relationships.
Quest Diagnostics Incorporated Price
Quest Diagnostics Incorporated price | Quest Diagnostics Incorporated Quote
In addition, to help offset inflationary pressure, it continues to pursue its operational excellence strategy and has been closely managing the cost structure through the invigorate initiatives.
In terms of Protecting Access to Medicare Act (PAMA), the company is optimistic about the recently introduced federal laboratory legislation called the Saving Access to Laboratory Services Act or SALSA. The company believes that SALSA has the potential to fix PAMA permanently. It would set the Medicare Clinical Lab Fee Schedule back on a sustainable path. If SALSA is not passed, it will result in Medicare cuts over three years, with additional cuts thereafter. Additionally, CMS increased Medicare reimbursement for specimen collection fees for the first time in nearly 40 years. This could provide Quest Diagnostics with a benefit of nearly $35 million to $40 million this year.
On the flip side, in the fourth quarter of 2022, COVID-19 testing revenues nosedived 74.6% to $184 million. Revenues for diagnostic information services declined 15.3% compared to the prior year, reflecting lower revenues from COVID-19 testing services versus the fourth quarter of 2021.
For the quarter, total base testing volumes declined 0.6% from the prior year. The year-over-year decline was primarily related to lower employer drug testing volume and adverse weather events during the quarter.
Total volume, measured by the number of requisitions, was down 11.2% year over year in the fourth quarter. Meanwhile, revenue per requisition declined 5.1% year over year due to lower COVID-19 molecular testing volume.
Selling, general and administrative expenses rose 21.3% in the quarter under review. Adjusted operating margin contracted year over year.
Other Key Picks
Some other top-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Cardinal Health, Inc. CAH and Merit Medical Systems, Inc. MMSI.
AMN Healthcare, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.9%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has gained 5.4% against the industry’s 19.6% decline in the past year.
Cardinal Health, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11.6%. CAH’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average beat being 6.4%.
Cardinal Health has gained 48.7% against the industry’s 0.8% decline over the past year.
Merit Medical, flaunting a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average beat being 25.4%.
Merit Medical has gained 28.1% against the industry’s 0.8% decline over the past year.
Just Released: Zacks Top 10 Stocks for 2023
In addition to the investment ideas discussed above, would you like to know about our 10 top picks for 2023?
From inception in 2012 through November, the Zacks Top 10 Stocks portfolio has tripled the market, gaining an impressive +884.5% versus the S&P 500’s +287.4%. Our Director of Research has now combed through 4,000 companies covered by the Zacks Rank and handpicked the best 10 tickers to buy and hold in 2023. Don’t miss your chance to still be among the first to get in on these just-released stocks.
See New Top 10 Stocks >>Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report
Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
Merit Medical Systems, Inc. (MMSI) : Free Stock Analysis Report
AMN Healthcare Services Inc (AMN) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
