On Wednesday, Baird, a financial services firm, raised its rating for Quest Diagnostics (NYSE:DGX) stock from Neutral to Outperform and increased the price target to $182 from $157. The upgrade reflects a positive outlook on the healthcare sector's momentum leading into 2025, with Quest Diagnostics poised to benefit from several favorable trends.
The company is expected to see stable pricing, core volume growth, and potential for increased deal activity. The absence of concerns over Protecting Access to Medicare Act (PAMA) adjustments and Laboratory Developed Tests (LDT) regulations also contribute to the firm's optimistic view. Baird's analysis suggests that if the Federal Reserve pursues a prolonged path of interest rate cuts, laboratory services companies like Quest Diagnostics have historically outperformed during such periods.
Baird highlighted the minimal controversies within healthcare services, and Quest Diagnostics stands out with fewer issues compared to others in the sector. The firm's analysis did not predict the nearly 7% increase in Quest Diagnostics' share price following the third quarter's report, yet Baird still sees potential for returns of approximately 15% or more, with an additional 2% dividend yield.
For the price-to-earnings (P/E) ratio, Baird applies a multiple of 17.5 times the calendar year 2024's anticipated earnings (CY24A: 17.7x). For the enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ratio, a multiple of 12.0 times is used, compared to the last twelve months (LTM) ratio of 12.8 times.
The discounted cash flow (DCF) analysis includes a beta of 0.80, which is notably lower than the current rate, and a modest 2% terminal growth rate. These factors combined yield a weighted average target of $182 for Quest Diagnostics' shares.
InvestingPro Insights
Quest Diagnostics' recent performance aligns with Baird's optimistic outlook. According to InvestingPro data, the company's stock has shown strong momentum, with a 32.45% price total return over the past year and is currently trading near its 52-week high at 98.81% of that level. This upward trend supports Baird's decision to upgrade the stock to Outperform.
The company's financial health appears robust, with a market capitalization of $17.64 billion and a P/E ratio of 19.82, which is in line with Baird's forward P/E projection. Quest Diagnostics has demonstrated steady growth, with revenue increasing by 2.6% over the last twelve months to $9,539 million, and an impressive 8.41% quarterly revenue growth in Q3 2024.
InvestingPro Tips highlight Quest Diagnostics' commitment to shareholder value. The company has maintained dividend payments for 21 consecutive years and has raised its dividend for 13 consecutive years, with a current dividend yield of 1.91%. This consistent dividend policy aligns with Baird's mention of the additional 2% dividend yield potential.
For investors seeking more comprehensive analysis, InvestingPro offers 10 additional tips for Quest Diagnostics, providing deeper insights into the company's performance and outlook.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.