Growing Coronavirus Testing Turns Quest Diagnostics Analyst Bullish

Quest Diagnostics Inc DGX  preannounced its second-quarter revenue at around $1.83 billion on Monday, beating Street estimates by about 18%. Preliminary also came in ahead, in the range of $1.39-$1.42 per share versus the Street’s 18-cent estimate. 

The company’s second-quarter earnings were driven by a faster recovery in core testing volumes and growing COVID-19 testing services, according to BofA Securities.

The Quest Diagnostics Analyst: Derik de Bruin upgraded Quest Diagnostics from Neutral to Buy and raised the price target from $124 to $142.

The Quest Diagnostics Thesis: Coronavirus testing tailwinds are likely to last longer than was previously anticipated, de Bruin said in a Tuesday upgrade note. (See his track record here.)

The analyst named the reasons for the prolonged tailwinds as:

• Deteriorating coronavirus situation in the U.S.
• Uncertainties around when a vaccine can be approved
• Doubts around herd immunity developing
• Potential for repeated waves of the virus

“We are still skeptical on serology testing and continue to assume a lower utilization rate, but we expect molecular testing (MDx) demand and utilization should continue at a high level,” de Bruin said. 

The analyst raised the revenue estimates for fiscal 2021 and 2022 from $7.542 billion to $8.134 billion and from $8.110 billion to $8.825 billion, respectively. BofA also raised the earnings estimates for the years from $4.20 per share to $6.30 per share and from $7.60 per share to $8.40 per share, respectively.

DGX Price Action: Shares of Quest Diagnostics were trading 0.77% higher to $120.06 at last check.

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