Shares of Quest Diagnostics Inc (DGX) were trading at around $154.77 apiece at close on Friday, September 17, outperforming the Health Care Select Sector SPDR (XLV) $132.35, by more than 10% so far this year.
The shares have a good likelihood to increase further over the upcoming twelve months. The triggering catalyst looks to be strong enough to continue to outpace the sector. So, I am bullish regarding this stock.
Based in Secaucus, New Jersey, Quest Diagnostics Incorporated develops diagnostic information services that it then provides to patients, various healthcare professionals, and hospitals located in the United States and internationally.
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From the Second Quarter Report
The return to normal life after a period of restrictions and other measures to prevent the spread of the COVID-19 virus had a positive impact on the financials of Quest in the second quarter of 2021. People were allowed again to access the healthcare system services, and the company could restart doing business, reaching new laboratory management agreements with more hospitals.
Thus, the adjusted diluted EPS jumped nearly 124% year-over-year to $3.18 versus the consensus average of $2.86, on total revenues of approximately $2.55 billion. The top line item grew more than 39% year-over-year and topped projections by $170 million.
Furthermore, the operating activities produced a higher cash flow of $460 million in the second quarter, exceeding that for the analogous period of 2020 by a little more than 30%.
In the short run, the demand for tests to detect the infection from the COVID-19 virus should remain robust, providing Quest Diagnostics with an additional source of income.
This is because the number of infections from the Delta variant is expected to increase in the upcoming weeks. People coming back from holidays, the ending of the restrictions, and the ability of the virus to mutate into new variants are the main factors.
With its strong presence in the territory, serving fifty percent of physicians and hospitals operating in the United States every year, the company is well-armed to take advantage of a situation, which, according to Statista, is seeing the United States perform the highest number of tests for COVID-19 from any country in the world.
Statista adds that as of Sept. 17, 2021, healthcare operators have performed about 615 million tests in the U.S., while the Institute for Health Metrics and Evaluation (IHME) projects that the number of tests will exceed 800 million before the end of 2021.
Looking Ahead to Full Year 2021
Quest Diagnostics forecasts that the adjusted diluted EPS will be between $11.65 and $12.35, compared to the consensus average of $11.59. Additionally, Quest estimates that the operating cash flow will reach $2 billion in 2021.
Wall Street’s Take
In the last 3 months, nine Wall Street analysts issued a 12-month price target for Quest Diagnostics Inc. The average Quest Diagnostics Inc price target is $162.22, implying a 4.8% upside. The analyst rating consensus is a Moderate Buy rating, based on 6 Buy, 3 Hold and zero Sell ratings.
There is a good likelihood the stock will continue to outperform the overall market, as the business lies on solid fundamentals. In the near term, it will benefit from the expected rise in the demand for the COVID-19 molecular tests.
Disclosure: At the time of publication, Alberto Abaterusso did not have a position in any of the securities mentioned in this article.
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