Company Reports

Quest Diagnostics delivered second-quarter results that held few surprises, and the firm remains on track to meet our full-year estimates. We’re leaving our fair value estimate unchanged for now. Quarterly revenue rose 2.5% year over year, supported by solid diagnostic test volume growth of 1.1% and price per requisition increasing by 1.6%. Though these underlying metrics softened a bit sequentially, they remain decent, and we think they reflect slightly heightened medical utilization. We saw little in the quarter to alter our view of Quest's narrow economic moat and its cost advantage.

Narrow-moat Quest Diagnostics posted solid first-quarter results that held few surprises. With the firm on track to meet our expectations for the full year, we’re leaving our $143 fair value estimate intact. With quarterly revenue up 1.5% on a consolidated basis, Quest has finally reached the end of the long covid-19 unwinding, as base business growth of close to 6% more than offset the decline in covid revenue. Considering covid revenue is small enough to be immaterial this year, Quest’s growth will rely on the rest of its test portfolio. Fortunately, test utilization continued to demonstrate strength, as base business volume rose 3% year over year. The robust results were strong enough for management to raise its outlook for 2024. Our revenue estimate for 2024 remains at the lower end of Quest’s new guidance, primarily because we’re wary of how long the strength in medical utilization last year can continue into 2024. Management has indicated utilization is likely to normalize through the year, and we’re inclined to agree.

Quest Diagnostics finished the year in strong fashion, generally consistent with our 2023 estimates, and with our projections for 2024 within the bounds of management’s outlook, we’re leaving our fair value estimate unchanged. On the whole, fundamentals of the underlying non-COVID-19 business remain steady. Though quarterly consolidated revenue fell 2% (driven by declines in COVID-19 demand), quarterly base business rose 5%, supported by a year-over-year volume increase of 5.2%. We think the fourth-quarter volume growth bodes well for continued strength in 2024. On the negative side, quarterly revenue-per-requisition fell by 3.5%, fueled primarily by the loss of high-margin COVID-19 tests. By midyear, we anticipate Quest will have settled in at normalized COVID-19 test contributions. The firm’s recent progress with its hospital reference lab business, impending rollout of its Haystack oncology test to detect minimal residual disease, and ongoing acquisition of hospital outreach programs leave us comfortable that Quest’s narrow economic moat remains intact.

Quest Diagnostics is a leading provider of independent diagnostic testing in the United States thanks to its network of roughly 2,300 patient service centers across the country. We think the company's size and cost advantage allow Quest to benefit from several secular trends, including the proliferation of diagnostic tests and greater clinical reliance on personalized therapies. Additionally, we expect that Quest will see a reprieve from Medicare-related pricing pressure as regulators tinker with the method for setting lab test reimbursement rates.

Narrow-moat Quest Diagnostics posted decent third-quarter results that illustrated another quarter of solid demand for non-COVID-19 tests that partially offset the significant decline in COVID-19 test revenue. With the top and bottom lines on track to meet our full-year expectations, we’re leaving our $143 fair value estimate unchanged. While quarterly total revenue fell 8% year over year, this was primarily driven by the 92% decrease in COVID-19 test revenue. We were pleased to see base business sales up 5% in the quarter, supported by mid-single-digit volume growth. In particular, several test areas saw double-digit revenue growth, including neurology, reproductive, immunology, and sexually transmitted infections. We think Quest has already weathered the worst of the COVID-19 decline, as both demand and reimbursement for the tests have fallen. Quarterly sequential declines have decelerated markedly and absolute COVID-19 revenue is now a small contributor to Quest's consolidated sales.

Narrow-moat Quest Diagnostics delivered second-quarter results that slightly exceeded our expectations on the top line, but that was offset by earnings that fell slightly short of our full-year estimates. Our fair value estimate is unchanged. Similar to the last five quarters, second-quarter demand for COVID-19 tests fell significantly (down 88% year over year), which should continue through the rest of 2023. However, absolute revenue from COVID tests has shrunk so much that the decline should have less of an impact on consolidated results. Additionally, recovery in the base business remains solid, with quarterly revenue up 9.5% from the prior-year period. Though we expect those outsize recovery rates to moderate as comparable quarters become more challenging, we think solid demand should support at least 2% revenue growth through 2024. If the proposed Saving Access to Laboratory Services Act supersedes Protecting Access to Medicare Act, there may be mild upside to our revenue estimate for next year. Pressure on profitability could continue this year thanks to the tight labor market. Employee turnover has been a persistent challenge, and we wouldn’t be surprised to see this last into next year, even as macro indicators suggest more people seek to enter the workforce again.

Narrow-moat Quest Diagnostics' first-quarter results displayed the balancing act that has challenged diagnostic competitors: Demand for COVID-19 testing declined dramatically (down 80% versus the year-ago period) while nonpandemic tests ramped up. With the quarter generally in line with our expectations, we’re leaving our fair value estimate unchanged. Quest enjoyed significant strength in its underlying base business, with quarterly base volume up 8% year over year, albeit compared with a weak prior-year period that was constrained by the omicron variant. Even after adjusting for the easy comparison, though, the estimated 4% base volume growth is nothing to sneeze at.

Like other healthcare companies involved with in vitro diagnostics, Quest Diagnostics felt the force of the COVID-19 seesaw in the fourth quarter, as COVID test revenue declined 75%, only partially offset by nonpandemic test revenue, up 6%. Nonetheless, the firm ended 2022 very close to our expectations, and we’re leaving our fair value estimate intact. For the full year, Quest ran slightly ahead of our projections on the top line, but operating expenses also outpaced our expectations, making the impact on valuation a wash. We saw little in the quarter to change our view of Quest’s narrow economic moat; the firm remains one of very few reference labs with the size and scale to generate a compelling cost advantage that can be maintained.

Quest Diagnostics is a leading provider of independent diagnostic testing in the United States thanks to its network of roughly 2,300 patient service centers across the country. We think the company's size and cost advantage allow Quest to benefit from several secular trends, including the proliferation of diagnostic tests and greater clinical reliance on personalized therapies. Additionally, we expect that Quest will see a reprieve from Medicare-related pricing pressure as regulators tinker with the method for setting lab test reimbursement rates.

Quest Diagnostics posted third-quarter results that ran slightly ahead of our expectations on the top and bottom lines, but our minor adjustments to our model weren’t enough to move the needle on our valuation. Similar to the second quarter, the firm seesawed between declining COVID-19 PCR tests and growth in its nonpandemic test business, which translated into total quarterly revenue falling 10% year over year. Provided that we don’t see another surge of COVID with cold and flu season kicking off this winter, we expect COVID-19 test revenue to fall closer to 8% of total sales in 2023, down from roughly 16% in 2022. We remain confident in Quest’s narrow economic moat and anticipate that further acquisitions of hospital outreach programs should only solidify the firm’s significant cost advantage over hospital-based and smaller independent labs.

Quest Diagnostics posted second-quarter results that were consistent with the broad outlines of our expectations as demand for COVID-19 PCR testing softens, and we’re leaving our fair value estimate unchanged. Specifically, quarterly consolidated revenue fell 4% year over year, which is a bit better than we’d anticipated as the non-pandemic test volume rose and COVID-19 PCR tests fell. However, this was offset by labor and transportation costs that also ran ahead of our expectations. Although the latest wave of omicron BA.5 seems to have helped slow the decline in COVID-19 test volume, demand for COVID-19 PCR tests continues to fall, especially as more people rely on the convenience of rapid antigen tests, vaccination and boosting have become widespread, and more therapies for infection have become available. It likely also helps that the latest variant does not seem to cause severe disease. The windfall from COVID-19 has put Quest in a favorable position to solidify its narrow economic moat through acquisitions that could enhance the firm’s cost advantage. Management has indicated the firm has been in late-stage discussions about the acquisition of some hospital outreach programs, which we think could be very attractive.

The omicron surge helped extend Quest Diagnostics’ relatively strong top-line growth into the first quarter of 2022. Despite management’s adjustments to the lower end of its COVID-19 outlook, we’re leaving our fair value estimate unchanged, as we expect demand for pandemic-related tests will decline significantly through this year, and our top- and bottom-line assumptions remain bounded by the revised outlook. Though operating margin should continue to moderate this year as COVID-19 PCR tests decline, we remain confident in the firm’s superior cost advantage, which supports its narrow economic moat. We view this cost advantage as a key factor that allows Quest to engage in value-based reimbursement programs and partner with the largest commercial payers, including UnitedHealth and Anthem.

Quest Diagnostics posted fourth-quarter results that generally met our expectations in terms of revenue and earnings growth. However, we’ve modestly lowered our fair value estimate to $143 per share, after trimming our projections for COVID-19 testing revenue in 2022. The pandemic remains the near-term driver for Quest, with fourth-quarter COVID-19 revenue accounting for roughly one quarter of total sales. With the delta and omicron variants bookending the fourth quarter, Quest’s COVID-19-related quarterly revenue fell 37% compared with the excessively strong year-ago period, which in turn, drove total quarterly revenue to fall by 9%. Despite these COVID-19 headwinds stretching through this year, we think Quest’s narrow economic moat remains solid, and we see little that could diminish the firm’s cost advantage.

Quest Diagnostics has positioned itself as the leading provider of independent diagnostic testing in the U.S. by building out a network of roughly 2,300 patient service centers across the country. We think Quest's size and cost advantage allows it to benefit from several secular trends, including the proliferation of diagnostic tests and greater clinical reliance on personalized therapies. Additionally, we expect that through the intermediate term, Medicare-related pricing pressure should ease as regulators tinker with the method for setting lab test reimbursement rates.

Quest Diagnostics has positioned itself as the leading provider of independent diagnostic testing in the U.S. by building out a network of roughly 2,300 patient service centers across the country. We think Quest's size and cost advantage allows it to benefit from several secular trends, including the proliferation of diagnostic tests and greater clinical reliance on personalized therapies. Additionally, we expect that through the intermediate term, Medicare-related pricing pressure should ease as regulators tinker with the method for setting lab test reimbursement rates.

Quest Diagnostics has positioned itself as the leading provider of independent diagnostic testing in the U.S. by building out a network of nearly 2,300 patient service centers across the country. We think Quest's size and cost advantage allows it to benefit from several secular trends, including the proliferation of diagnostic tests and greater clinical reliance on personalized therapies. Additionally, we expect that over the longer term, reimbursement pressure will push hospital-based labs and small independents to outsource more volume at the largest, lowest-cost producers, including Quest.

Quest Diagnostics delivered third-quarter results that ran slightly ahead of our expectations as demand for COVID-19 testing saw a surge thanks to the delta variant. We’ve modestly raised our fair value estimate to $140 per share, up from $130, with roughly one third of the boost coming from our expectation that declines in pandemic test volume will be somewhat more gradual than we’d originally anticipated and the remainder coming from an adjustment to the share count to reflect recent repurchase activity. While we anticipate the course of the pandemic will remain a key factor for Quest through 2022, we remain confident in the firm’s narrow economic moat. Although Quest has seen some pressure on labor and transportation costs, all competitors in this arena face the same conditions and there’s little to suggest this has diminished Quest’s cost advantage.

Narrow-moat Quest Diagnostics posted strong second-quarter performance against a weak prior-year period that was hampered by shelter-at-home orders. However, with COVID-19 test tailwinds softening and much tougher comparisons with the second half of 2020 ahead, we’re holding steady on our fair value estimate. Our top- and bottom-line projections for full-year 2021 remain bounded by management’s 2021 outlook, and the slight adjustments we’ve made to reflect strong cost containment were largely offset by our incorporation of a rise in the U.S. corporate tax rate starting in 2022.

Narrow-moat Quest Diagnostics posted another quarter of outsized performance thanks to COVID-19 tailwinds, but with softening demand already occurring, we’re leaving our fair value estimate unchanged and see shares as fairly valued. While quarterly revenue grew 49% in first quarter and we expect another strong showing in second quarter (against the weak second quarter in 2020), we’re keeping a close eye on the shift away from COVID-19 PCR testing as vaccinations in the U.S. continue to penetrate the adult population. Thanks to the boost in test volume and relatively generous reimbursement on COVID-19 PCR tests, Quest delivered eye-popping quarterly operating profit and adjusted earnings per share that increased 375% and nearly 300%, respectively.

The only thing surprising about Quest Diagnostics’ sale of its portion of the Q2 Solutions joint venture to its partner IQVIA is that it took this long to occur, in our minds. The addition of $600 million in after-tax cash did not materially move our $130 fair value estimate. But, we think the development allows narrow-moat Quest to concentrate on what it does best: running reference labs and enhancing its already-sizeable cost advantage over smaller independent labs and hospital-based labs. Q2 Solutions emerged in 2015 as a joint venture between Quest and CRO leader Quintiles, in the wake of rival LabCorp’s purchase of CRO Covance. However, shortly afterwards Quintiles then merged with IMS Health and the combined entity became IQVIA. With Quintiles focused on utilizing the rich cache of IMS data to improve its enrollment of clinical trials, we’d speculated the Q2 joint venture likely wouldn’t last very long.