What To Expect From Quest Diagnostics (DGX) In Q4 Earnings

Quest Diagnostics Inc. (NYSE:DGX) is scheduled to report fourth-quarter and fiscal 2017 earnings results before the opening bell on Feb 1.

Last quarter, the company surpassed the Zacks Consensus Estimate by four cents delivering a positive earnings surprise of 2.96%. Also, it outperformed the consensus mark in all the trailing four quarters with an average beat of 7.4%.

Let’s take a look at how things are shaping up prior to this announcement.

Factors at Play

After a phase of sustained drag for several quarters in the company’s revenue per requisition performance, the last couple of quarters saw a slight rebound. However, it still remains to be seen if this upside is here to stay or not. The company’s two Professional Lab Services engagements — WJ Barnabas Health and HealthONE System of HCA Holdings, Inc. (HCA) — carry lower revenue per requisition due to the nature of work.

Overall, we believe a lack of employment and slow growth of commercially-insured lives to continuously affect the company’s volumes (measured by the number of requisitions) till the economy turns around for better.

Quest Diagnostics Incorporated Price and EPS Surprise

Quest Diagnostics Incorporated Price and EPS Surprise | Quest Diagnostics Incorporated Quote

This apart, unit price headwinds were less than 100 bps in the third quarter. While unit price challenges hovered in moderate ranges (at approximately 1%) over the last few years, the company continues to expect the same for the rest of 2017 too.

Also, in the last couple of years, Quest Diagnostics faced several reimbursement issues hurting its revenues. The company is concerned about the CMS (Centers for Medicare & Medicaid Services) proposal related to Protecting Access to Medicare Act. We believe, reimbursement pressure will be reflected as an overhang in the company’s performance this soon-to-be-reported quarter too.

Notably in December, the company as a key member of the American Clinical Laboratory Association (“ACLA”) has come forward to support a lawsuit filed by ACLA against the Acting Secretary of the US Department of Health and Human Services (HHS). The lawsuit charged that the CMS, operating under the purview of HHS, has failed to follow a congressional directive to implement a market-based laboratory payment system.

However, come what may, this leaves no impact on the company’s yet-to-be-reported quarter’s revenue numbers.

On a positive note, Quest Diagnostics seems well-aligned with its two-point growth agenda to accelerate the same and drive operational excellence.

We are also optimistic about the company’s successful execution of its strategy to build esoteric testing business and boost profitable growth.

Additionally, Quest Diagnostics has recently witnessed a significant improvement via infectious disease testing, prescription drug monitoring and industry-leading wellness business. Therefore we expect these growth drivers to replicate the company’s success story in its upcoming quarterly results, having thus remained active throughout, and drive the same primary metrics as well like the preceding quarter.

We strongly believe all these recent developments to have significantly contributed to the company’s top line in the fourth quarter.

The company expects 2017 revenues of approximately $7.71 billion (annualized growth of approximately 3%). The Zacks Consensus Estimate for full-year revenues is pegged at $7.94 billion, higher than the guided range.

Moreover, the company’s 2017 adjusted EPS range remains within $5.62-$5.67. The Zacks Consensus Estimate of $5.96 for the period also remains above the company’s projected range.

Earnings Whispers

Our proven model does not conclusively show that Quest Diagnostics is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Quest Diagnostics has an Earnings ESP of -1.74%. This is because the Most Accurate estimate of $1.37 is pegged lower than the Zacks Consensus Estimate of $1.39. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Quest Diagnostics has a Zacks Rank #3, which increases the predictive power of ESP. However, we need a positive ESP to be confident about an earnings surprise. Hence, this combination leaves surprise prediction inconclusive.

We caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Worth a Look

Here are a few medical stocks worth considering with the right combination of elements to surpass estimates this time around:

Bio-Rad Laboratories (NYSE:BIO) has an Earnings ESP of +4.45% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Myriad Genetics (NASDAQ:MYGN) has an Earnings ESP of +0.42% and a Zacks Rank of 3.

Henry Schein (NASDAQ:HSIC) has an Earnings ESP of +0.09% and is a Zacks #3 Ranked player.

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