Quest Diagnostics Inc.’s DGX investments in Advanced Diagnostics are paying off, aiming to deliver and scale innovative services that improve patient care and drive growth. The company focuses on generating growth through value-creating and strategically aligned acquisitions, emphasizing accretive outreach purchases and other independent labs. A strong focus on operational excellence is highly encouraging for the stock. Meanwhile, unfavorable solvency and a fierce competitive landscape pose risks to its operations.

In the past year, this Zacks Rank #3 (Hold) stock has rallied 25.2% compared with the industry’s 2.9% growth and the S&P 500 composite’s 10.6% rise.

The renowned provider of diagnostic information services has a market capitalization of $18.38 billion. Quest Diagnostics has an earnings yield of 5.85% compared with the industry’s yield of 4.32%. The company’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 3.75%.

Factors Fueling DGX’s Growth

Strength in Advanced Diagnostics: The highly specialized Advanced Diagnostics offerings include molecular genomics and oncology tests, such as germline testing to assess prenatal and hereditary genetic risks and somatic testing for tumor sequencing. As the portfolio continues to grow, its broader adoption is driving a favorable test mix and growth in test per requisition for Quest Diagnostics. Throughout 2024, the company consistently generated double-digit revenue growth across several clinical areas. Strong demand for AD-detect blood tests within brain health drove solid growth in the fourth quarter.

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Growth in women's health was driven largely by prenatal and hereditary genetic testing, consistent with the recent quarters. Quest Diagnostics saw a robust uptake of self-collection options for genital tract infection testing. Following strong feedback, the company is transitioning 75 leading academic health systems and community oncology centers from the Early Experience program to a commercial phase for the Haystack MRD blood test, with revenues anticipated in 2025.  Additionally, Quest Diagnostics expects sustained growth in the areas of advanced cardiometabolic and autoimmune testing.

Growing Through Acquisitions: Quest Diagnostics’ recent outreach acquisitions highlight its ability to attract top, growing health systems seeking to evolve their lab strategies to improve access and affordability. They also position it to expand into key geographic areas across the United States, where the influence of health systems had previously limited their reach. During the fourth quarter, Quest Diagnostics completed the acquisition of outreach lab assets from Ohio Health and University Hospitals, two leading non-profit health systems in Ohio.

The LifeLabs transaction boosted Quest Diagnostics’ DIS revenues, strengthening its foothold in the Canadian market and creating new growth opportunities. The company acquired Allina Health, a leading non-profit health system serving Minnesota and western Wisconsin and the laboratory business of three physician groups in New York. Additionally, the acquisition of PathAI Diagnostics bolsters its AI and digital pathology capabilities for better diagnosis of cancer and other diseases.

Strategic Imperative to Drive Operational Excellence: As part of its broader strategy to drive operational improvements across the business, Quest Diagnostics strategically deploys automation and AI to improve quality, service, efficiency and the workforce experience. In 2024, the company’s multi-year cost excellence program, Invigorate, delivered 3% annual cost savings and productivity enhancements. It also achieved significant improvements in retention rates across various job categories.

The Clifton, New Jersey lab serves as a hub for many of Quest Diagnostics’ automation and AI solutions, including a proprietary system for enhanced tuberculosis testing and an accessioning solution that speeds requisition processing. The company also deployed a third-party AI solution to enhance parasitology screening by identifying likely positive specimens for further review. These solutions are expected to expand to other labs in 2025.

Challenges for DGX Stock

Escalating Debt Level: The company’s solvency level remains a concern. At the end of the fourth quarter of 2024, long-term debt in the balance sheet was $5.62 billion, while the cash and cash equivalent balance was only $549 million. The current portion of the debt stood much higher at $602 million.

Competitive Landscape: Quest Diagnostics faces intense competition primarily from LabCorp, other commercial laboratories and hospitals. While pricing is an important factor in choosing a testing lab, hospital-affiliated physicians expect a high level of service, including an accurate and rapid turnaround of testing results. As a result, Quest Diagnostics and other commercial labs compete with hospital-affiliated labs primarily based on the quality of service.

DGX Stock Estimate Trend

The Zacks Consensus Estimate for Quest Diagnostics’ 2025 earnings per share (EPS) has dropped by 1 cent to $9.69 in the past 30 days.

The consensus estimate for the company’s 2025 revenues is pegged at $10.77 billion. This suggests 9.1% growth from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Veracyte VCYT, Hims & Hers Health HIMS and Boston Scientific BSX.

Veracyte has an earnings yield of 3.6% against the industry’s -3.3% yield. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 515.9%. Its shares have gained 40.1% against the industry’s 7.3% decline in the past year.

VCYT carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hims & Hers Health, carrying a Zacks Rank #2 at present, has an earnings yield of 1.9% against the industry’s -7.6%. Shares of the company have surged 115.6% against the industry’s 10.6% decline. HIMS’ earnings surpassed estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 40.4%.

Boston Scientific, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 13.3%. Shares of the company have rallied 49.4% compared with the industry’s 7.1% growth. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 8.3%.

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

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