Quest Diagnostic Grows On New Acquisitions Amid Low Volume

On Mar 17, we issued an updated research report on Quest Diagnostics Inc. (NYSE:DGX) . As part of its two-point strategy, the company has been focusing on areas with high potential. However, overall soft industry trends inducing a low-volume environment have been affecting Quest Diagnostics.

Shares of the company have outperformed its industry over the past six months. Per the last share-price movement, the stock has lost 8.9%, as against the industry’s 14.2% rally.

Quest Diagnostics reported a stellar fourth quarter, with both earnings and revenues beating the respective Zacks Consensus Estimate.

Revenues for Diagnostic Information Services grew 5.1% on solid volume growth, an easy comparable and acquisitions amid significant reimbursement pressure related to PAMA. We are upbeat about the company’s expanded network access, which boosted its volume growth in the fourth quarter.

This solid volume expansion, combined with its strategy to attain operational excellence, aided it to counter significant reimbursement pressure. The current-year outlook seems promising despite the company having reckoned another year of meaningful reimbursement pressure.

Quest Diagnostics is currently refocusing on its diagnostic information services wing and disciplined capital deployment. Its acquisitions and collaborations with hospitals and integrated delivery networks consistently act as major catalysts.

During the fourth quarter, the company announced the acquisition of Boston Clinical Laboratories, a small regional laboratory in Massachusetts. Two other recently-announced acquisitions are Blueprint Genetics (to strengthen position in advanced diagnostics) and a multifaceted long-term collaboration with the Memorial Hermann Health System. Quest Diagnostics has also signed a professional laboratory services agreement with an eight-hospital health system in Tennessee.

Meanwhile, the current market environment is challenging for Quest Diagnostics in the form of continued declines in healthcare utilization rate, softer volume, commercial pricing pressure and reimbursement headwinds. Also, a rise in patient concession, along with certain reserve adjustments, has dented revenue per requisition. Apart from this, escalating costs and a tough competitive landscape raise concerns.

The stock currently carries a Zacks Rank #3 (Hold).

Stocks Worth a Look

A few better-ranked stocks in the broader medical space are ResMed Inc. (NYSE:RMD) , Medtronic plc (NYSE:MDT) and Hill-Rom Holdings, Inc. (NYSE:HRC) .

ResMed has a projected long-term earnings growth rate of 14.4%. It currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Medtronic’s long-term earnings growth rate is estimated at 7.4%. The company presently carries a Zacks Rank #2.

Hill-Rom’s long-term earnings growth rate is estimated at 11.1%. It currently holds a Zacks Rank #2.

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