Why Quest Diagnostics (DGX) Is A Suitable Pick For Investors

Madison, NJ-based Quest Diagnostics, Inc. (NYSE:DGX) , a provider of commercial laboratory services, has been on a growth trajectory of late. It has rallied 35.4% over the past one year, ahead of the S&P 500’s 15.5% gain. The stock has a market cap of $14.92 billion.

Also, the company has gained 11%, better than the Zacks categorized Medical - Outpatient and Home Healthcare sub-industry's gain of 4.6% in the last three months.

Notably, Quest Diagnostics’ current year estimate revision trend is favorable. Over the past 60 days, three analysts have raised their earnings estimates, with no movement in the opposite direction. The magnitude of estimate revision increased around 1% to $5.56 per share over the same time frame. The company has a trailing four-quarter average positive earnings surprise of 5.2%.

With strong growth prospects, this Zacks Rank #2 (Buy) company is an attractive pick at present.

We note that, management’s 2017 guidance is based on new and extended two-point strategy to generate shareholder value – accelerating growth and driving operational excellence. Lately, the company has raised its outlook for revenue growth for the period 2017–2020 to 3–5%. Earnings for the same period are expected to grow faster than revenues in the mid-to-high single digit range.

Presently, the company has partnered with a number of other heath care players. These include the latest tie-up with Safeway and HealthOne Systems of HCA Healthcare. Other recent alliances include Quintiles, a leading provider of biopharmaceutical development and commercial outsourcing services, Memorial Sloan-Kettering, the University of California and the latest professional lab services relationship with Barnabas Health.

Meanwhile,Quest Diagnostics has been focusing on areas with high potential such as gene-based esoteric testing for cancer, cardiovascular disease, infectious disease and neurological disorders. The company recently announced the launch of a test service that helps physicians evaluate patient response to drug therapy used to treat infection with hepatitis B virus. This is the first test of its kind available in the U.S. Management is currently on track to open a total of 200 patient service centers in Safeway stores by the end of 2017.

Management also announced agreements to acquire two laboratory businesses in Lewisville, Texas, namely Med Fusion and Clear Point. The businesses jointly provide a complete range of cancer diagnostic services to physicians and provider networks. We expect this deal to boost Quest Diagnostics’ growth in the cancer diagnostic segment.

However, downside may come from the current market environment which remains challenging for Quest Diagnostics in the form of continued decline in healthcare utilization rate, commercial pricing pressure and reimbursement headwind. Additionally, the company faces intense competition from hospital-affiliated labs primarily on the basis of quality of service.

Other Key Picks

Other top-ranked medical stocks are Align Technology, Inc. (NASDAQ:ALGN) , Inogen, Inc. (NASDAQ:INGN) and Accelerate Diagnostics, Inc. (NASDAQ:AXDX) . Notably, Align Technology and Inogen sport a Zacks Rank #1 (Strong Buy), while Accelerate Diagnostics carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology has an expected long-term adjusted earnings growth of almost 24.1%. The stock has added roughly 33% over the last three months.

Inogen has a long-term expected earnings growth rate of 17.5%. The stock has gained around 28% over the last three months.

Accelerate Diagnostics has an expected long-term adjusted earnings growth of 30%. The stock has gained roughly 30.1% over the last three months.

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