A month has gone by since the last earnings report for Quest Diagnostics (DGX). Shares have lost about 5.3% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Quest Diagnostics due for a breakout? 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 Posts Earnings Beat, Revenue Per Requisition Inches Up in Q4
Quest Diagnostics’ fourth-quarter 2019 adjusted earnings per share of $1.67 surpassed the Zacks Consensus Estimate by 4.4%. Adjusted earnings also improved 23.7% from the year-ago number. The impact of certain one-time items, such as restructuring and integration charges plus amortization expenses, was excluded from both the quarters’ adjusted figures.
GAAP earnings per share from continuing operations came in at $1.86, skyrocketing 101.2% from the year-ago quarter.
For the full year, adjusted earnings of $6.56 per share came ahead of the Zacks Consensus Estimate by 1.1% and also rose 3.9% from the year-ago figure. The figure exceeded the company’s projected range of $6.45-$6.50 as well.
Reported revenues in the fourth quarter rose 4.7% year over year to $1.93 billion. The same beat the consensus estimate of $1.92 billion.
Full-year revenues of $7.73 billion topped the Zacks Consensus Estimate of $7.72 billion and improved 2.6% from the 2018-level too. This also edged past the company’s expected revenues of $7.72 billion.
Quarterly Details
Volumes (measured by the number of requisitions) expanded 4.1% year over year in the fourth quarter (up 3.4% organically). Revenue per requisition also inched up 1.2% year over year.
Diagnostic information services revenues in the quarter were up 5.1% on a year-over-year basis to $1.84 billion.
Cost of services during the reported quarter was $1.26 billion, up 2.3% year over year. Gross margin came in at 34.4%, reflecting 153-basis point (bps) growth from the year-ago figure.
Selling, general and administrative expenses dipped 1.9% to $349 million in the quarter under review. Adjusted operating margin of 16.3% represented a 277-bps expansion year over year.
Quest Diagnostics exited 2019 with cash and cash equivalents of $1.19 billion compared with $135 million at the end of 2018. Full-year net cash provided by operating activities was $1.24 billion compared with $1.2 billion a year ago.
In the fourth quarter, the board of directors authorized a 5.7% hike in the company’s quarterly dividend to 56 cents per share or $2.24 annually (payable Apr 21, 2020).
The company also increased its share repurchase authorization by $1 billion, bringing the total buyback available to $1.2 billion as of Dec 31, 2019.
2020 Guidance
Quest Diagnostics provided its 2020 outlook. Adjusted earnings per share for the full year is predicted to be more than $6.60. The Zacks Consensus Estimate for the metric is pegged at $6.73.
Revenues for 2020 are estimated in the band of $7.80-$7.96 billion. This indicates anticipated growth of 1-3%. The current Zacks Consensus Estimate for revenues of $7.90 billion falls within the company’s guided band.
Operating cash flow for 2020 is envisioned in the range of $1.25-$1.30 billion. The capital expenditure is forecast at $375-$400 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Quest Diagnostics has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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.
Quest Diagnostics Incorporated (NYSE:DGX
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