On Jun 26, 2016, we issued an updated research report on Quest Diagnostics, Inc. DGX – a major commercial laboratory services provider.
Quest Diagnostics has successfully conformed to its five-point strategy that focuses on areas with high potential such as gene-based esoteric testing for cancer, cardiovascular disease, infectious disease and neurological disorders. In the last couple of months, the company has made a number of strategic product launches and formed new partnerships.
This includes three new cancer test services that will provide clinically actionable insight into an individual's risk of developing hereditary forms of cancer. These tests will remain part of the company's newly branded Quest Vantage cancer test menu.
We are also looking forward to the company’s recently formed alliance with HealthONE System of HCA Healthcare HCA to enhance the quality and value of diagnostic services. Per the agreement, Quest Diagnostics will manage in-patient laboratory operations for six Denver-area hospitals in the HealthONE system.
Quest Diagnostics’ other significant partnerships in recent times include the latest alliance with Quintiles, a leading provider of biopharmaceutical development and commercial outsourcing services, Memorial Sloan-Kettering, the University of California, San Francisco and the latest professional lab services relationship with Barnabas Health.
We are also positive on the current favorable demographic trends. Quest Diagnostics’ mergers and acquisitions activity too is on track. In Feb 2016, the company acquired Hartford HealthCare's outreach business under which, it will be paid on a fee-for-service basis by payers at traditional rates. In Aug 2015, the company acquired MemorialCare Health Systems' laboratory outreach services business.
However, 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 the Protecting Access to Medicare Act (PAMA). Moreover, lower healthcare utilization continues to be a major deterrent. Although the company has seen signs of modest increase in utilization, sustainability is still a concern.
The stock currently carries a Zacks Rank #3 (Hold).
Key Picks in the Sector
Some better-ranked stocks in the healthcare sector are CryoLife Inc. CRY and Masimo Corporation MASI, both sporting a Zacks Rank #1 (Strong Buy).
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