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Quest Diagnostics (DGX) Up 1.9% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Quest Diagnostics (DGX). Shares have added about 1.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Quest Diagnostics due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Quest Diagnostics Posts In Line Earnings, Revenue Per Requisition Falls in Q3

Quest Diagnostics' third-quarter 2018 adjusted earnings per share (EPS) of $1.68 were on par with the Zacks Consensus Estimate. Adjusted earnings rose 20.9% from the year-ago number.

Reported EPS came in at $1.53, reflecting a 32.7% rise from the year-ago quarter.

Reported revenues in the third quarter moved up 1.8% year over year to $1.889 billion but missed the Zacks Consensus Estimate by 3.1%.

Volumes (measured by the number of requisitions) increased 2% year over year in the third quarter. However, revenue per requisition was down 0.8%. Diagnostic information services revenues in the quarter rose 1.9% on a year-over-year basis to $1.81 billion.

Cost of services during the reported quarter was $1.222 billion, up 2.7% year over year. Gross margin came in at 35.3%, reflecting a 60-basis point (bps) contraction year over year.

Selling, general and administrative expenses rose 1.7% to $354 million in the reported quarter. Consequently, adjusted operating margin showed a contraction of 50 bps to 16.6%.

Quest Diagnostics exited the third quarter with cash and cash equivalents of $263 million, compared to $132 million at the end of second-quarter 2018. Net cash provided by operating activities was $905 million for the nine months ending Sep 30, 2018, compared with $852 million in the year-ago quarter.

In the third quarter, the company repurchased 0.9 million shares of the common stock for $100 million. As of Sep 30, 2018, Quest Diagnostics was left with $0.8 billion of authorization under the approved share repurchase plan.

Guidance Tweaked

Quest Diagnostics has updated its 2018 guidance. Excluding the impact of amortization expense, adjusted EPS for the full year is now projected in the range of $6.53 to $6.60 compared to the previous range of $6.53 to $6.67. The Zacks Consensus Estimate of $6.59 is within the guided range.

Revenues for 2018 are now estimated around $7.62 billion (annualized growth of roughly 3%) compared to the previous range of $7.70 billion to $7.74 billion (annualized growth of 4-4.5%). The current Zacks Consensus Estimate for revenues of $7.70 billion, exceeds the company's projected figure.

Operating cash flow for 2018 is still expected at around $1.3 billion. The current estimates for capital expenditure remain unchanged at the range of $350 million to $400 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Quest Diagnostics has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Quest Diagnostics has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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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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