Shares of Quest Diagnostic Inc. (DGX) scaled a new 52-week high of $69.58 on Jan 2. The bullish run reflects the company's enhanced focus on higher growth areas through innovative product launches, balance sheet strength and impressive third-quarter 2014 results.
Quest Diagnostics' shares eventually closed at $68.97 on the day, translating into a decent one-year return of around 31%. The year-to-date return on the stock stands at roughly 3%. Currently, this NJ-based provider of diagnostic testing, information and services has a market cap of $10 billion while average volume of shares traded over the past one day is roughly $1.7 million.
Over the past few months, Quest Diagnostics has been in the news for the diagnostics tests it has launched, with the aim to expand its foothold in the Esoteric testing business space. With continued population growth and favorable demographics, management believes that the company has already started to benefit from this space riding on higher demand for advanced esoteric tests by physicians.
Last month, Quest Diagnostics' Simplexa Flu A/B & RSV Direct Kit won U.S. Food & Drug Administration (FDA) clearance for testing eight additional influenza viruses. With this being just the beginning of the 2014-2015 flu season, this news announcement should encourage more physicians treating influenza-affected patients to adopt this test kit. This, in turn, will translate into higher Simplexa Flu A/B & RSV Direct test revenues for Quest Diagnostics.
In Nov 2014, Quest Diagnostic launched its first suite of lab-developed test services – BRCAvantage Plus – in an attempt to bolster its position in the breast cancer diagnostic testing market. This product will estimate genetic breast cancer risk based on clinically validated non-BRCA as well as BRCA genes and has also been made available across the entire U.S.
Market is also upbeat about the progressive long-term outlook announcement that Quest Diagnostics has made at its Investor Day in Nov 2014. Per this announcement, Quest Diagnostics expects to continue to achieve overall average revenue growth of 2–5% over the next three years, including potential acquisitions. During the same time-period, management also expects to attain 8–10% adjusted diluted earnings growth on average, excluding the benefit of share repurchases. Moreover, management intends to continue to return the majority of its free cash flow to shareholders through share repurchases and dividends.
Meanwhile, the company reported strong third-quarter 2014 results on Oct 23, with earnings of $1.10 per share steering ahead of the Zacks Consensus Estimate of 2 cents. The bottom line also exceeded the year-ago quarter equivalent by 7.8%. On the other hand, revenues increased 6.5% year over year to $7.90 billion, largely exceeding the Zacks Consensus Estimate of $1.88 billion.
In the last reported quarter, the company's cash from operations came in at $271 million, up 45.7% from the year-ago quarter reflecting progress in the company's efforts to deliver and manage working capital. Currently Quest Diagnostics expects to make small acquisitions in the laboratory space in the future, that would expand its customer base and be immediately accretive to earnings.
Currently, Quest Diagnostics carries a Zacks Rank #3 (Hold). Some better-ranked medical stocks are Almost Family Inc. (AFAM), PharMerica Corporation (PMC) and AAC Holdings, Inc. (AAC). While Almost Family and PharMerica Corporation sport a Zacks Rank #1 (Strong Buy), AAC Holdings carries a Zacks Rank #2 (Buy).
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