Quest Diagnostics DGX has achieved impressive growth over the past year, with its shares rising 38%. It has outperformed the industry’s 7.7% rise and the S&P 500 composite’s 17.1% gain.

Presently carrying a Zacks Rank #3 (Hold), the renowned clinical laboratory continues to demonstrate robust momentum in its core customer channel, supported by a growing utilization of the Advanced Diagnostics portfolio. Strategic outreach acquisitions and a strong focus on driving operational improvements further bode well for the stock.

Secaucus, NJ-based Quest Diagnostics provides a broad range of diagnostic information services to patients, clinicians and healthcare organizations. The company is a key provider of reference testing for approximately half of the hospitals in the United States. It also offers physician services that are reimbursed by Medicare under a physician fee schedule, subject to adjustment on an annual basis. Strategic acquisitions have fueled growth, while the company also aims to drive operational excellence across the customer value chain and operations.

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Factors Favoring DGX’s Growth

The rally in the share price can be linked to the company’s success in delivering solutions to meet the evolving needs of its core customers — physicians, hospitals and consumers. DGX enables growth across the customer channels through Advanced Diagnostics and its highly specialized services in the areas of molecular diagnostics, oncology, neurology, companion diagnostics and non-invasive pre-natal and other germline genetic testing. Throughout 2024, Quest Diagnostics consistently generated double-digit revenue growth across several clinical areas, including solid Brain Health growth in the fourth quarter, driven by robust demand for AD-detect blood-based Alzheimer’s Disease tests. 

The company plans to expand the portfolio with new biomarkers to better assess Alzheimer's and other forms of dementia. Growth in women's health remains largely driven by prenatal and hereditary genetic testing, similar to the past few months. Additionally, Quest Diagnostics is gearing up to commercialize the Haystack MRD (minimal residual disease) blood test for early detection of solid tumor cancers, following favorable feedback from its Early Experience program. In 2024, the Questhealth.com platform generated nearly $100 million in revenues, along with revenues from channel partners, and added 135 different consumer-initiated tests. 

In terms of its acquisition strategy, the company puts a high emphasis on accretive outreach purchases and other independent labs. In 2024, DGX completed eight acquisitions, including Ohio Health and University Hospitals — two leading non-profit health systems in Ohio and PathAI Diagnostics — to increase the adoption of AI and digital pathology for improved cancer diagnosis. The addition of LifeLabs boosted Quest Diagnostics DIS revenues in the fourth quarter of 2024, strengthening its foothold in the Canadian market and creating new growth opportunities. All of these acquisitions align with the company’s criteria for growth, profitability and returns.

Investors are also upbeat about the company deploying automation and AI to improve quality, service, efficiency and the workforce experience.  In 2024, the Invigorate program successfully delivered 3% annual cost savings and productivity enhancements.

Concerns for DGX

The company’s solvency level remains a concern. It reported a long-term debt of $5.62 billion at the end of the fourth quarter of 2024, while the cash and cash equivalent balance was $549 million. A higher debt level induces higher interest payments, which comes along with the risk of failure to pay the same. 

A Glance at DGX’s Estimates

The Zacks Consensus Estimate for Quest Diagnostics’ 2025 and 2026 earnings per share (EPS) is expected to increase 8.6% and 8.1%, respectively, to $9.70 and $10.49. In the past 30 days, the Zacks Consensus Estimate for the company's 2025 EPS has dropped by 1 cent.

Revenues for 2025 are projected to grow 9.1% to $10.77 billion, followed by a 3.7% increase to $11.17 billion in 2026.

Key Picks

Some better-ranked stocks in the broader medical space are Masimo MASI, Boston Scientific BSX and Cardinal Health CAH.

Masimo has an earnings yield of 2.5%, well ahead of the industry’s -3.6% yield. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 14.4%. Its shares have surged 48.8% against the industry’s 1.3% decline in the past year.

MASI sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Scientific, carrying a Zacks Rank #2 (Buy), has an earnings yield of 2.7% compared with the industry’s 1.4%. Shares of the company have rallied 53.9% compared with the industry’s 11.8% growth. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 8.3%.

Cardinal Health, carrying a Zacks Rank #2 at present, has an estimated long-term earnings growth rate of 10.7% compared with the industry’s 9.4%. Shares of the company have rallied 14.9% against the industry’s 2.4% fall. CAH’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 9.6%.

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This article originally published on Zacks Investment Research (zacks.com).

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