Quest Diagnostics (DGX) Tops Q4 Earnings, Offers '17 View

Quest Diagnostics ' DGX fourth-quarter 2016 adjusted earnings per share (EPS) of $1.31 came in 4 cents or 3.1% ahead of the Zacks Consensus Estimate and exceeded the year-ago number by 10.1%.

Adjusted EPS in the reported quarter excludes charges related to restructuring and integration as well as amortization expenses. Reported EPS in the fourth quarter came in at $1.09, representing a year-over-year plunge of 15.5%.

Full-year adjusted EPS came in at $5.15, an 8% improvement from the year-ago period. The number also exceeded the Zacks Consensus Estimate of $5.10.

Reported revenues for the fourth quarter inched up 0.7% year over year to $1.86 billion, while remaining in line with the Zacks Consensus Estimate. According to the company, the year-over-year improvement came on the back of expanding relationships with hospital health systems and strength in several of the company's advanced diagnostic offerings.

The company's 2016 revenues were $7.51 billion, up 0.3% from the year-ago period. However, it missed the Zacks Consensus Estimate of $7.65 billion.

Quest Diagnostics Incorporated Price, Consensus and EPS Surprise

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

Volume (measured by the number of requisitions) increased 1.5% year over year during the fourth quarter. Revenue per requisition was up 0.4% year over year. Diagnostic information services revenues in the quarter grew 2% on a year-over-year basis.

Among operating expenses, cost of services during the reported quarter was $1.16 billion, up 0.86% year over year. Gross margin came in at 37.7%, a contraction of 14 basis points (bps) year over year.

Selling, general and administrative expenses dropped 6.8% to $400 million in the reported quarter. Adjusted operating margin showed an improvement of 157 bps to 16.2%.

Quest Diagnostics exited the year with cash and cash equivalents of $359 million, which marked a 169.9% surge from the previous year. Full-year net cash provided by operating activities was $1.07 billion compared with $821 million in the year-ago period.

In the fourth quarter, the Board of Directors increased the amount available under the company's existing share repurchase program by $1 billion. As of Dec 31, 2016,Quest Diagnostics was left with $1.4 billion of authorization under the approved share repurchase plan.


Quest Diagnostics has provided full-year 2017 guidance. The company currently expects full-year revenues to be within the range of $7.64 billion to $7.72 billion (annualized growth of 2-3%). The current Zacks Consensus Estimate for revenues is pegged at $7.65 billion, close to the lower end of the company's guided range.

In addition, the company's 2017 adjusted EPS range has been forecasted as $5.37-$5.52. The Zacks Consensus Estimate of $5.44 remains within this range.

Operating cash flow for 2017 is expected to reach $1.1 billion. The current estimates for capital expenditure remain within the range of $250-$300 million.

Our Take

Quest Diagnostics' fourth-quarter earnings duly exceeded the Zacks Consensus Estimate while revenues remained in line. The company is currently refocusing on its core diagnostic information services business and working on delivering disciplined capital deployment.

We are also highly optimistic about the company's focus on continued execution of its five-point strategy. According to Quest Diagnostics, its planned divestiture of the Focus Diagnostics products business is part of this broader strategy to refocus the same on diagnostic information services. In addition, several new relationships with hospitals and integrated delivery networks were the other growth drivers.

However, over the past several quarters, the overall soft industry trends, leading to a low volume environment, have acted as a dampener for the company.

Zacks Rank& Key Picks

Currently, Quest Diagnostics carries a Zacks Rank #2 (Buy).

Some other favorably ranked medical stocks include Cardiovascular Systems, Inc. CSII , Neogen Corp. NEOG and OraSure Technologies, Inc. OSUR . While Cardiovascular Systems sports a Zacks Rank #1 (Strong Buy), Neogen and Orasure hold a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Cardiovascular Systems rallied 200.5% in the past one year, way higher than the S&P 500's 22.06% gain. It has a positive average earnings surprise of 31.8%.

Neogen gained 27.52% in the past one year, better than the S&P 500 mark. The stock has impressive long-term earnings growth expectations of 16.7% for the next five years compared with the industry average of 15.2%.

OraSure Technologies surged 57.95% in the last one year, compared to the S&P 500. The company has a stellar four-quarter average earnings surprise of over 100%.

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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.

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

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