Will New Buyouts Aid Quest Diagnostics (DGX) Q4 Earnings?

Quest Diagnostics Incorporated (NYSE:DGX) is scheduled to report fourth-quarter 2019 and full-year earnings on Jan 30, before the opening bell.

In the last reported quarter, the company’s earnings of $1.76 exceeded the Zacks Consensus Estimate by 2.33%, the average trailing four-quarter positive surprise being 1.91%.

Let’s take a look at how things are shaping up prior to this announcement.

Factors Likely to Impact Q4 Results

Quest Diagnostics seems well-aligned with its two-pronged agenda to accelerate growth and drive operational excellence. Per the company, its frequently growing partnerships with other health care leaders and prudent buyouts are creating a pool of opportunities for both the top and the bottom line. At the same time, the patient experience improved and the overall cost of care, reduced.

As an evidence, despite PAMA reimbursement pressuresweighing heavily on the industry, the company fulfilled all the five elements of its growth acceleration strategy through the last few quarters. We strongly expect this momentum to get reflected in the upcoming quarterly results as well.

Going by the first element of its growth policy (to further strengthen the top line by 2% via strategically accretive acquisitions), in the fourth quarter, the company acquired Clinical Laboratory Services of Boston Clinical Laboratories in Massachusetts, N.J. We hope this transaction will leave a positive impact on the company’s earnings and will find reflection in its to-be-reported results.

Considering the second element of Quest Diagnostics’ key growth plans, which is to expand relationships with hospital health systems, the company is executing this strategy quite successfully. Its top-line outcome is expected to reflect the impact of its recent partnerships with Catholic Health Services (CHS), an integrated health care delivery system, and hc1, a bioinformatics player in precision testing, in the impending quarterly release.

Quest Diagnostics Incorporated Price and EPS Surprise

Quest Diagnostics Incorporated price-eps-surprise | Quest Diagnostics Incorporated Quote

With respect to the third element of offering its diagnostic innovation a wider access, the company has been witnessing growth in prescription drug monitoring, continued strength in tuberculosis testing in both QuantiFERON and T-Spot plus STD testing and CardioIQ. Per the company, its recently-inked consolidation deals are predicted to upgrade capabilities in advanced diagnostics, especially in the areas of Women’s Health and Infectious Disease. These new developments are expected to have contributed to the company’s fourth-quarter top line.

About the fourth element of the company’s key catalysts, which is to provide ample choices to consumers, the company’s liaison with Walmart (NYSE:WMT) already started adding value to this end with higher patient traffic. Moreover, the company’s alliance with Safeway currently flaunts more than 200 patient service centers across its retail store locations. This positivity is likely to reflect on Quest Diagnostics’ fourth-quarter earnings performance.

The fifth element of Quest Diagnostics’ list of major drivers indicates its support to population health within analytics and extended care services. In this regard, the company of late launched Quest Clinical Trial Connect, a patient recruitment service.

Apart from the above five elements, Quest Diagnostics endeavors to scale up productivity as part of its efforts to ramp up the operating efficiency. This, in turn, enabled the company to successfully manage headcount growth.

We expect these chief catalysts to replicate the company’s success story in its imminent quarterly results. Also, a better-than-expected third-quarter performance is likely to have perked up the same primary metrics in the fourth quarter.

We strongly believe that all these recent developments might have significantly favored the company’s top line in the quarter to be reported.

On the flip side, Quest Diagnostics has been suffering a significant PAMA-driven reimbursement pressure that remains a major headwind to structural changes in the marketplace. In the first half of 2019, Medicare rates were 10% down from the prior-year level. This might have affected the company’s business through the second half as well. In fact, this should get reflected in the upcoming quarterly results.

The Zacks Consensus Estimate of $1.60 for fourth-quarter earnings implies a 17.7% rise from the year-ago reported figure.

What Our Model Suggests

The proven Zacks model does not conclusively predict an earnings beat for Quest Diagnostics this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a positive surprise. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Quest Diagnostics has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%.

Stocks Worth a Look

Here are a few medical stocks worth considering as these have the right combination of elements to beat on earnings this reporting cycle.

DexCom, Inc. (NASDAQ:DXCM) currently has an Earnings ESP of +17.07% and a Zacks Rank #2.

Exact Sciences Corporation (NASDAQ:EXAS) presently has an Earnings ESP of +12.08% and a Zacks Rank of 2.

Tandem Diabetes Care, Inc. (NASDAQ:TNDM) currently has an Earnings ESP of +27.59% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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