On Monday, Baird made a slight adjustment to the stock price target of Quest Diagnostics (NYSE:DGX), reducing it to $181 from $182, while reiterating an Outperform rating on the company's stock. The adjustment follows a recent upgrade to Outperform after Quest Diagnostics reported solid third-quarter results for the year 2024.
The firm acknowledged that Quest Diagnostics' forecast for 2024, which includes a 6% revenue growth and a 2% EPS growth, might seem modest when compared to its peer LabCorp. However, Quest has been dealing with various temporary challenges while managing to maintain its record of meeting or exceeding earnings per share (EPS) expectations.
For the year 2025, Baird anticipates additional catalysts that could boost Quest Diagnostics' performance. These include a reduction in the dilutive impact of Haystack and a quicker benefit from the integration of LifeLabs. Moreover, the company is seen as open to small outreach deals as it continues to merge recent acquisitions into its operations.
The analyst pointed out that Quest's near-term price to earnings (P/E) ratio is approximately 21% lower relative to the S&P 500, and although its absolute valuation is higher than historical averages—with a forward P/E of 17.4 times versus the typical 15 times, and an enterprise value to EBITDA (EV/EBITDA) of 11.4 times compared to the usual 9 times—the valuation is seen as reasonable. This perspective takes into account the expected acceleration in growth for the year 2025 and beyond.
In other recent news, Quest Diagnostics has reported a series of notable developments. The company's third-quarter revenues reached $2.49 billion, marking an 8.5% year-over-year increase. This growth is attributed to both organic expansion and strategic acquisitions, including the purchase of LifeLabs.
Despite weather disruptions and operational challenges, Quest Diagnostics offered an optimistic full-year 2024 guidance, projecting revenues between $9.8 billion and $9.85 billion and adjusted earnings per share (EPS) of $8.85 to $8.95.
Financial services firm Baird upgraded Quest Diagnostics' stock from Neutral to Outperform, reflecting a positive outlook on the healthcare sector's momentum and several favorable trends. Similarly, Leerink Partners increased their price target on Quest Diagnostics to $165 from $160, reflecting a valuation of approximately 17 times the firm's calendar year 2025 earnings per share estimate.
In other company news, Quest Diagnostics is set to launch avian flu testing later this month, following contracts awarded by the U.S. Centers for Disease Control and Prevention. The company has also received a contract to develop diagnostics for the Oropouche virus, an emerging virus in the Americas. These are the recent developments surrounding Quest Diagnostics.
InvestingPro Insights
Quest Diagnostics' recent performance and future outlook align with several key metrics and insights from InvestingPro. The company's market cap stands at $18.26 billion, reflecting its significant presence in the Healthcare Providers & Services industry. Quest's P/E ratio of 21.8 and adjusted P/E ratio of 20.55 for the last twelve months as of Q3 2024 support Baird's observation about the company's valuation relative to historical averages.
InvestingPro Tips highlight Quest's financial stability and shareholder-friendly policies. The company has maintained dividend payments for 21 consecutive years and has raised its dividend for 13 consecutive years, demonstrating a commitment to returning value to shareholders. This consistent dividend growth, coupled with a current dividend yield of 1.83%, may appeal to income-focused investors.
The company's revenue growth of 2.6% over the last twelve months and a more robust 8.41% growth in Q3 2024 align with Baird's expectations for modest growth in the near term. Additionally, Quest's profitability is underscored by its gross profit margin of 32.97% and operating income margin of 14.03% for the last twelve months as of Q3 2024.
It's worth noting that InvestingPro offers 10 additional tips for Quest Diagnostics, providing investors with a more comprehensive analysis of the company's financial health and market position.
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