Quest Diagnostics (DGX) Grows on Two New Lab-Service Pacts

Quest Diagnostics DGX recently formed professional lab services relationships with two hospitals to provide enhanced laboratory services. This is in line with the second element of the company’s growth acceleration strategy per which the company emphasizes on broadening its network through health plan contracts and tie-ups with hospital health systems.  

Per the latest announcement, the first laboratory management services tie up is with Montefiore Nyack Hospital and its renal physician practice Highland Medical Rockland Renal Associates in Rockland County New York. The company will provide service related to day-to-day management of the hospital laboratories, laboratory supply chain management and esoteric reference testing.

This apart, the company entered into a professional laboratory services relationship with Goshen Hospital in Indiana to provide supply chain management expertise along with reference testing.

Quest Diagnostics believes that under the current healthcare scenario, the company’s lab strategies are suitable for the challenges that hospitals are facing.

Growth Acceleration Strategy Related Update

Quest Diagnostics is moving ahead with its growth strategy, which consists of five elements. So far, the first element of growing more than 2% through strategically aligned accretive acquisitions is progressing well. Despite the difficult M&A environment due to the pandemic, the company was able to close the acquisition of Mid America Clinical Laboratories in Indiana. Further, its recently-completed acquisition of Memorial Hermann outreach business is performing well. According to Quest Diagnostics, both the acquisitions led to growth in both COVID-19 testing and base business. Further, there was growth within advanced diagnostics from the acquisition of Blueprint Genetics.

Per the second element, as discussed above, Quest Diagnostics continues to extend health plan contracts and tie-ups with hospital health systems. In the last-reported third-quarter 2020, its hospital reference testing volumes excluding COVID-19 returned to growth. We note that the company has entered the second year of being a member of the UnitedHealthcare's Preferred Lab Network.

Third, it intends to offer a wider access to diagnostic innovation, the company launched three new combined COVID-19 and respiratory virus tests, reducing time for physician to diagnose and treat patients by identifying nearly 20 viral and bacterial infections from a single swab. It has also launched automated next generation sequencing solution that enables individuals to access genetic testing insights about hereditary diseases at consumer price points through Ancestry Health.

The fourth aspect of the company’s growth strategy involves providing ample choices to consumers. It launched the COVID-19 active infection test in this regard, offering consumers a choice of using an at-home kit or getting the specimen collection done at a drive-through location.

Finally, the company is complying well with the fifth element of its growth strategy, which requires it to support population health with data analytics and extended care services. The launch of Quest Clinical Trial Connect, a patient recruitment service, was in line with this strategy.

Price Performance

Shares of the company have gained 6.5% in the past three months compared with the industry’s 5.2% rise.

Zacks Rank & Key Picks

Quest Diagnostics currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader medical space are ResMed Inc. RMD, Thermo Fisher Scientific Inc. TMO and Align Technology, Inc. ALGN.

ResMed’s long-term earnings growth rate is estimated at 14.5%. The company presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 18%. It currently carries a Zacks Rank #2.

Align Technology’s long-term earnings growth rate is estimated at 18.3%. It currently carries a Zacks Rank #2.

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