Quest Diagnostics' Q2 Earnings Performance Suggests Stable Stock, Modest Growth Ahead, Analyst Says

On Tuesday, Quest Diagnostics Inc DGX posted second-quarter adjusted EPS of $2.35, beating the consensus of $2.34.

Sales increased 2.5% year-over-year to $2.39 billion, almost in line with the consensus of $2.39 billion.

“We delivered another strong quarter, with base business revenue growth of nearly 4% and total revenue growth of 2.5%, as well as continued improvement in productivity and profitability in the base business,” said Jim Davis, Chairman, CEO, and president.

“This performance is due to growth of new physician and hospital customers, more favorable test mix that includes greater adoption of advanced diagnostics and continued strength in healthcare utilization. We also made progress improving our operational quality and efficiency through greater use of automation and AI,” he added.

Adjusted operating income increased 2.1% to $398 million.

Outlook: Quest Diagnostics revised its fiscal year 2024 revenue guidance to $9.50 billion-$9.58 billion, versus prior guidance of $9.4 billion-$9.48 billion and consensus of $9.46 billion.

The company forecasts 2024 adjusted EPS of $8.80-$9.00 versus the prior guidance of $8.72-$8.97 and consensus of $8.86.

William Blair notes that total base revenue for the second quarter increased about 4%, closely aligning with the estimated 3.7%. Management highlighted sustained strength in healthcare utilization as a key factor, noting this positive trend has lasted longer than anticipated.

Additionally, growth was supported by the addition of new physician and hospital customers and greater adoption of advanced diagnostics, resulting in a more favorable revenue mix.

The analyst considers Quest’s recent results solid, with key metrics meeting or slightly exceeding expectations. The full-year forecast has improved slightly more than anticipated, and operating margins are rising from earlier lows. This performance is likely to keep the stock stable.

Looking ahead, William Blair sees potential for modest growth in the latter half of the year, with the company poised for high-single-digit earnings growth in 2025. Quest is well-positioned for consistent, predictable growth across different market cycles, with strategies in place to capitalize on trends in lab testing over the long term.

William Blair rates the stock as Outperform.

Price Action: DGX shares are up 4.06% at $141.53 at the last check Tuesday.

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