Quest Diagnostics New Tests Uptake Strong Amid Coronavirus Woe

On Sep 22, we issued an updated research report on Quest Diagnostics, Inc. DGX. As part of its two-point strategy, Quest Diagnostics has been focusing on areas with high potential. However, the ongoing COVID-19 led economic crisis remains a major cause of concern for this Zacks Rank #1 (Strong Buy) company.

Year to date, shares of Quest Diagnostics have outperformed its industry. The stock has gained 10.7% compared with 5% rise of the industry.

In the second quarter, although total sales and adjusted earnings dropped on a year-over-year basis, both exceeded the Zacks Consensus Estimate. Total sales were stronger than the company’s anticipation as well. These results were driven by a strong rebound in the company’s base testing volumes for March and April, as the healthcare system began to resume non-urgent care and elective surgeries sooner than Quest Diagnostics had originally anticipated.

Heavy demand for COVID-19 molecular testing helped partially offset the base volume decline as well. The company registered increasing demand for its tests with the continuing spread of the virus throughout most part of the country. Further, it also benefited from a number of areas like the pent-up need to test non-COVID-19 pre-surgical patients, people in high-risk populations like nursing homes and prisons, the proliferation of retail testing sites, and finally, employer interest in testing their staff before they return to work.

Quest Diagnostics Incorporated Price

Quest Diagnostics Incorporated Price

Quest Diagnostics Incorporated price | Quest Diagnostics Incorporated Quote

The company has also extended its COVID-19 testing capacity in the nation. Meanwhile, it is working together with large national retailers like Walmart and CVS Health for the purpose of building a new model for easy customer access to testing.

Overall, we note that Quest Diagnostics is currently refocusing on diagnostic information services wing and disciplined capital deployment. Its acquisitions and collaborations with hospitals and integrated delivery networks consistently act as major catalysts. Despite the difficult M&A environment due to the pandemic, the company was able to close the acquisition of the Memorial Hermann outreach business.

On the flip side, Quest Diagnostics’ year-over-year decline in second-quarter adjusted earnings and as well as revenues was concerning. Revenues for diagnostic information services declined 5.7% compared to the prior year. Through the quarter, the company experienced a significant decline in testing volumes with social distancing and shelter-in-place measures were instituted to combat the outbreak. During this period, volumes declined 17.7% despite adjusting for the growth in COVID-19 testing.

Pressure on volume, owing to a difficult macro-economic situation and pricing, constitutes the primary risk for Quest Diagnostics. Nevertheless, we have observed some changes in the volume trend over the past couple of quarters. In the reported quarter, volume measured by the number of requisitions declined 17.7% year over year, (acquisitions contributing approximately 50 basis points). Meanwhile, revenue per requisition improved 15.2% in the reported quarter primarily driven by reimbursement for COVID-19 molecular testing.

Key Picks

Some other top-ranked stocks from the broader medical space are QIAGEN N.V. QGEN, Thermo Fisher Scientific Inc. TMO and Hologic, Inc. HOLX.

QIAGEN’s long-term earnings-growth rate is estimated at 22.3%. It currently sports a Zacks Rank #1. (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher’s long-term earnings-growth rate is estimated at 15%. It currently carries a Zacks Rank #2 (Buy).

Hologic’s long-term earnings-growth rate is estimated at 15.5%. The company presently sports a Zacks Rank #1.

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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.

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