Quest Diagnostics (DGX) Q1 Earnings Meet, Guidance Intact

Quest Diagnostics Incorporated’s (NYSE:DGX) first-quarter 2018 adjusted earnings per share (EPS) of $1.52 are on par with the Zacks Consensus Estimate. Adjusted earnings rose 24.6% from the year-ago number.

Reported EPS came in at $1.27, reflecting a 9.5% rise from the year-ago quarter.

Reported revenues in the first quarter moved up 3.7% year over year to $1.884 billion but fell short of the Zacks Consensus Estimate of $1.90 billion. According to the company, the year-over-year improvement came on the back of successful execution of its two-point strategy of accelerating growth and driving operational excellence.

Volume (measured by the number of requisitions) increased 2.2% year over year in the fourth quarter. Also, revenue per requisition ticked up 1.6%. Diagnostic information services revenues in the quarter rose 4.1% on a year-over-year basis to $1.80 billion.

Cost of services during the reported quarter was $1.226 billion, up 5.2% year over year. Gross margin came in at 34.9%, reflecting a 100 basis points (bps) contraction year over year.

Coming to operating expenses, selling, general and administrative expenses increased 2.3% to $363 million in the reported quarter. Consequently, adjusted operating margin showed a contraction of 60 bps to 15.7%.

Quest Diagnostics Incorporated Price, Consensus and EPS Surprise

Quest Diagnostics exited the first quarter with cash and cash equivalents of $124 million, which marked a 9.5% decline from $137 million at the end of 2017. Net cash provided by operating activities was $180 million compared with $196 million in the year-ago period.

In the first quarter, the company repurchased 0.5 million shares for $50 million. As of Mar 31, 2018, Quest Diagnostics was left with $0.9 billion of authorization under the approved share repurchase plan.

Guidance Intact

Quest Diagnostics has reiterated its 2018 guidance. Excluding the impact of special items, amortization expense and ETB (excess tax benefit associated with stock-based compensation), adjusted EPS for full-year is projected in the range of $6.50 to $6.70. The Zacks Consensus Estimate of $6.59 is within the guided range.

Revenues for 2018 are expected in the range of $7.70 billion to $7.77 billion (annualized growth of 4-5%). The current Zacks Consensus Estimate for revenues is pegged at $7.72 billion, well within the company’s projected range.

Operating cash flow for 2018 is expected at around $1.3 billion. The current estimates for capital expenditure range from $350 million to $400 million.

Our Take

Quest Diagnostics is currently refocusing on its core diagnostic information services business and working on disciplined capital deployment.

We are also highly optimistic about the company’s focus on its two-point strategy. The company’s latest collaborations with hospitals and integrated delivery networks continue to act as major growth drivers.

Further, the company seems to be satisfied with the revenue growth despite lower Medicare reimbursement under Protecting Access to Medicare Act and severe winter weather headwinds.

Notably, in the last couple of years, Quest Diagnostics has faced several reimbursement issues which have hurt revenues.

Zacks Rank & Other Key Picks

Quest Diagnostics carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the broader medical sector are Abaxis, Inc. (NASDAQ:ABAX) , Bio-Rad Laboratories, Inc. (NYSE:BIO) and Align Technology, Inc. (NASDAQ:ALGN) .

While Abaxis and Bio-Rad sport a Zacks Rank #1 (Strong Buy), Align carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Abaxis is expected to release fourth-quarter fiscal 2018 results on Apr 26. The Zacks Consensus Estimate for adjusted EPS is pegged at 32 cents and for revenues stands at $67.2 million.

Bio-Rad is expected to report first-quarter 2018 results on May 3. The Zacks Consensus Estimate for adjusted EPS is 90 cents and for revenues is $530.4 million.

Align Technology is slated to release first-quarter 2018 results on Apr 25. The Zacks Consensus Estimate for adjusted EPS is 98 cents and for revenues is $408.3 million.

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