On Dec 24, 2015, we issued an updated research report on Quest Diagnostics, Inc. DGX – a major commercial laboratory services provider. Through the past several quarters, the overall soft industry trends, responsible for low volume growth, have been a major dampener for the company.
This apart, Quest Diagnostics is highly disappointed with the recent CMS proposal related to Protecting Access to Medicare Act (PAMA). According to the company, the proposed draft has several limitations disputing the definition of ‘market’ as included in PAMA.
To add to that, pressure on volume, owing to a difficult macro-economic situation, and pricing constitute the primary risks for Quest Diagnostics. Moreover, lower healthcare utilization still acts as a major deterrent. Although the company has seen signs of modest increase in utilization, sustainability is still a matter of question.
Nevertheless, we are positive on the current favorable demographic trends. Under its recently formed joint venture with Quintiles (now Q2 Solutions), Quest Diagnostics launched two companion diagnostic solutions for non-small cell lung cancer, based on the recent FDA-approved Merck therapy, KEYTRUDA and Bristol-Myers Squibb's therapy OPDIVO.
We are also impressed with the company’s growing list of strategic partnerships with healthcare leaders and its expansion through acquisitions. The acquisition of MemorialCare Health Systems' laboratory outreach services business and the alliance with Quintiles – a leading provider of biopharmaceutical development and commercial outsourcing services – are the ones worth mentioning. More recently, in December, the company tied up with New Jersey's largest not-for-profit integrated health care delivery system, Barnabas Health, to manage laboratory operations for Barnabas Health hospitals.
The stock currently carries a Zacks Rank #4 (Sell).
Key Picks in the Sector
Some better-ranked stocks in the same sector are AmSurg Corp. AMSG, PharMerica Corporation PMC and Amedisys Inc. AMED. All the three stocks carry a Zacks Rank #2 (Buy).
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