Quest Diagnostics Incorporated (NYSE:DGX) , one of the largest providers of commercial laboratory services, is on a healthy growth trajectory of late. For the better part of last six months, the stock was trading ahead of the S&P 500 Index. It has rallied 19.4% in this period compared with the market’s mere 7.1% gain. The stock has a market cap of $14.1 billion.
The company’s share price has also outperformed the Zacks categorized Medical - Outpatient and Home Healthcare sub-industry’s 7.5% gain during this period.
This Zacks Rank #2 (Buy) stock is an attractive pick at present on the back of its solid growth prospects. Let’s find out whether the recent positive trend is a sustainable one or is it just a short-term gain?
Key Positives
A stellar first-quarter 2017 result was a major market sentiment booster, courtesy of the company’s expanding relationships with hospital health systems and its strength in several advanced diagnostic offerings.
Quest Diagnostics is well-positioned to gain from its merger and acquisition activity, which is believed to be a key growth driver and functioning in full swing. Worth noting is the company’s recent contract to acquire an outreach operation of PeaceHealth Laboratories, anticipated to close in the second quarter.
Post the closing, the company is set to execute a professional laboratory services agreement to manage 11 PeaceHealth Laboratories, serving medical centers across three states in Pacific Northwest zone. This move is likely to bolster growth in the second half of 2017.
The market is also looking forward to the company’s recent collaboration with Cape Cod Healthcare (CCHC) to obtain its outreach laboratory service business.Per the acquisition deal, post completion of this transaction, the diagnostic testing information center would convert into a full-service, state-of-the-art clinical laboratory for Quest Diagnostics in Marlborough, MA.
The transaction is estimated to be a strategic fit as it would benefit from Quest Diagnostics’ scale and expertise to produce more cost-effective testing facilities for patients as well as government and commercial health plans. These takeover plans of Quest Diagnostics are consistent with the company’s goal of contributing 1–2% revenue growth annually via accretive acquisitions.
Investors are also positive about the company’s long-term growth potential. Recently, Quest Diagnostics came up with a renewed and upgraded long-term growth outlook (beyond 2017) based on its new and extended two-point strategy to generate shareholder value-accelerating growth and driving operational excellence. The company currently expects revenue growth for the period 2017-2020 to be 3-5%. Earnings for the same period are expected to grow faster than revenues in the mid-to-high single digit range.
Per the company, its increasing partnerships with other health care leaders are creating some promising opportunities for both top and bottom line growth while simultaneously improving the patient experience as well as reducing the overall cost of care.
Key Picks
A few other top-ranked medical stocks are Align Technology, Inc. (NASDAQ:ALGN) , Inogen, Inc. (NASDAQ:INGN) and Accelerate Diagnostics, Inc. (NASDAQ:AXDX) . While Inogen sports a Zacks Rank #1 (Strong Buy), Align Technology and Accelerate Diagnostics carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Align Technology has an expected long-term adjusted earnings growth of almost 24.1%. The stock has roughly climbed 29.9% over the last three months.
Inogen has a long-term expected earnings growth rate of 17.5%. The stock has jumped 24.4% over the last three months.
Accelerate Diagnostics has an expected long-term adjusted earnings growth of 30%. The stock has approximately added 9.8% over the last three months.
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