Why Is Quest Diagnostics (DGX) Up 3.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Quest Diagnostics (DGX). Shares have added about 3.1% in that time frame, underperforming 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 drivers.

Quest Diagnostics Q1 Earnings Surpass, Margins Crash

Quest Diagnostics Incorporated’s first-quarter 2024 adjusted earnings per share  of $2.04 beat the Zacks Consensus Estimate by 9.7%. However, the metric came in line with the year-ago adjusted figure.

Certain one-time expenses, like the ones related to amortization expenses, certain restructuring and integration charges, other expenses and excess tax benefits associated with stock-based compensations, were excluded from the quarter’s adjusted figures.

GAAP earnings came in at $1.72 per share, down 3.4% from the last year’s comparable figure.

Quarterly Details

Revenues reported in the first quarter rose 1.5% year over year to $2.37 billion. The metric exceeded the Zacks Consensus Estimate by 3.3%.

Diagnostic Information Services revenues in the quarter were up 1.7% on a year-over-year basis to $2.30 billion. This figure compares with our model’s projection of $2.21 billion for the first quarter.

Volumes (measured by the number of requisitions) were up 1.6% year over year in the first quarter. Revenue per requisition increased 0.1% year over year.

Margins

The cost of services during the reported quarter was $1.60 billion, up 2.2% year over year. The gross profit came in at $771 million, similar to the first-quarter 2023 figure. The gross margin was 32.6%, reflecting a 49-basis point (bps) contraction from the year-ago figure.

SG&A expenses increased 0.2% to $440 million in the quarter under review. The adjusted operating margin of 14% represented a 25 bps contraction year over year.

Cash, Capital Structure and Solvency

Quest Diagnostics exited the first quarter of 2024 with cash and cash equivalents of $474 million compared with $686 million at the end of 2023. The cumulative net cash provided by operating activities at the end of the first quarter of 2024 was $154 million compared with $94 million at the end of the first quarter of 2023.

The company has a five-year annualized dividend growth rate of 7.48%.

Guidance

Quest Diagnostics provided an updated full-year 2024 guidance.

Revenues for the full year are expected in the $9.40 billion-$9.48 billion band (previously $9.35 billion to $9.45 billion). The Zacks Consensus Estimate is pegged at $9.39 billion.

Adjusted earnings per share is expected in the range of $8.72-$8.97 (previously $8.60 to $8.90). The Zacks Consensus Estimate for the metric is pegged at $8.75.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Quest Diagnostics has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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.

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