The company has also made plenty of progress on the way through its foray into health plans, and its excellent positioning in hospital health systems. A combination of Health plan expansions, Hospital health systems, Advanced diagnostics, and direct-to-consumer testing - all of these are targeting accelerated revenue growth, new revenue sources, and increased market shares for the coming few years that the market may well be underestimating the company's earning ability based on these upsides.ĭGX targets a 2%+ accreditive, annual growth in revenues, and a 2022-2024 revenue growth of 4-5% specifically, with a 7-9% adjusted EPS growth during these years. The company has plenty of plans to do just that. It's also wrong to say that the company has no plans to accelerate growth outside of COVID-19. The fundamental picture, which is absolutely fine and where DGX is a stellar company with a superb lab market exposure and market share, and that's really made a windfall of cash from emergency use authorizations from COVID-19, that has enabled the company to push ahead with growth and expansion plans as well as multiple crucial strategic partnerships. The picture that investors should focus on when looking at DGX is therefore two-fold. Even with the company establishing new partnerships, the avenue to keeping that growth going, and that valuation going in turn, seems slim at best.
Yes, COVID-19 testing might not disappear anytime soon - but even the company expects those volumes to start to drop off in the coming months and quarters.Īs I mentioned in my previous article, I expect the company's earnings growth related to this to disappear in 2022-2024. Because COVID-19 testing is as non-recurring as it is in the long-term, there's an expected overall dropoff in earnings/profits over the next few years, even with the company's non-COVID 19 growth. Since that began, the company has been trading up, its normal EPS growth cycle is broken, and its valuation metrics are distorted. The problem is that COVID-19 brought to the company a massive, non-recurring windfall of cash due to testing. Lab tests in the US are an $80B+ billion market, and DGX is among the leaders here. The combination of servicing hospitals and physicians with tests and the like, as well as being among the national leaders in overall patient data (1.8M tests per day, 6800+ access points nationwide), make the company, at least theoretically, excellent.Īnd remember - market share itself here is an argument. The company serves a large portion of US hospitals and physicians, which by itself denotes quality and upside for a business like this. The fundamentals of Quest are well-established. It gives it a bit more appeal, but indexes have dropped far more - and it also doesn't include the concerns I have for DGX. Since my last article, the company hasn't dropped even 6%. In this article, I'll show you what I'm looking at with regards to this, and what makes this business a bit trickier.
However, Quest Diagnostics has some challenges that need to be considered before you go straight into investing in the business here. Now, I've been waiting for the right time to get into DGX for a bit, and the time might be coming for us to do just that. Quest Diagnostics ( NYSE: DGX) is a company I've been reviewing for a few years and updating on for some time.
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