On Apr 5, 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 #3 (Hold) company.
In the past year, shares of Quest Diagnostics have outperformed its
industry
. The stock has gained 64.5% compared with 36.2% rise of the industry.
The company reported better-than-expected fourth-quarter 2020 figures. Strong year-over-year improvement in adjusted earnings and as well as revenues was encouraging. Continued high demand for COVID-19 testing drove performance through the quarter. Demand spiked as the infection surged in the last two months of the quarter. The Memorial Hermann outreach and MACL acquisitions have positioned Quest Diagnostic well to achieve M&A growth target in 2021. A positive demography and strong balance sheet are added benefits.
Quest Diagnostics Incorporated Price
Quest Diagnostics Incorporated price
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Quest Diagnostics Incorporated Quote
In the fourth quarter of 2020, despite decline in Quest Diagnostics’ base testing volume, revenues for Diagnostic Information Services grew approximately 58% year over year, which reflected growing demand for COVID-19 testing services. COVID-19 testing continued to be a meaningful contributor to volumes during the quarter.
Approximately 12.5 million molecular tests and 1 million serology tests were performed in the quarter, contributing approximately 29% to volume growth. The company exited the fourth quarter, averaging approximately 130,000 COVID-19 molecular tests and 10,000 serology tests per day. Revenue per requisition increased 25.2% driven largely by COVID-19 testing.
Among major developments related to COVID-19 testing, in January, the company entered into an agreement with the Centers for Disease Control and Prevention (CDC) to provide genomic sequencing to identify new mutations in, and patterns of transmission of SARS-CoV-2, the virus that causes COVID-19. Financial terms of the agreement were not disclosed.
On the flip side, pressure on volume, owing to a difficult macro-economic situation and pricing, constitutes the primary risk for Quest Diagnostics. In October and November, organic testing volumes ordered in base business were down by mid-to-high single digits versus the prior year. The recovery came to halt in late November with organic testing volume trends down in high-single-digits versus the prior year period due to surge in new infections across the country.
We should also take into consideration that the unit price headwinds persisted through the fourth quarter (1.6%). We also expect that a low level of employment and slow growth of commercially-insured lives will continuously impact the company’s overall improvement until the economy rebounds.
Key Picks
A few better-ranked stocks from the broader medical space include
Asensus Surgical, Inc.
ASXC
,
Cantel Medical Corp.
CMD
and
ConforMIS, Inc.
CFMS
, each carrying a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Asensus Surgical has a projected long-term earnings growth rate of 71%.
Cantel Medical has a projected long-term earnings growth rate of 19%.
ConforMIS has a projected long-term earnings growth rate of 42%.
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