Quest Diagnostics (NYSE:DGX) Improves Its Standing After Earnings

Offering coronavirus testing is a pretty good way to ensure your stock price makes at least something like a climb, even when it doesn't always go according to plan. Quest Diagnostics (NYSE:DGX) demonstrated as much recently, climbing up out of a hole to achieve, if only for a while, new heights in its share price before making something of a return to normalcy. Its latest earnings report, meanwhile, should give the stock a boost in the short term, if nothing else.

An Increasingly Familiar Picture

Quest Diagnostics spent the latter half of 2019 on into 2020 on a fairly familiar path, holding a line—if somewhat jagged line—between $100 and $108 dollars for around four months. In January 2020, the company started a slow uptick, and might well have seen some exciting new highs not seen in a while, at least until March hit.

On March 5, the company had a high it hadn't seen in months prior, coming in at $115.68. Like an accelerated British horror movie, though, 15 days later, it dropped to $75.24. A recovery began soon after but didn't last, as the company went from $88.97 on March 26 to $73.34 April 3. After that, though, the real recovery kicked in, and not only did Quest Diagnostics get back to its rut, but it started to demonstrate some real upside potential.

An Impressive Earnings Report

Quest had turned things around after April, and saw the stock price start to climb, as it began to offer coronavirus testing. Such tests were prized in the early days of the coronavirus, and demands for nigh-constant testing poured out of certain sectors. It was sufficient for Quest to not only post gains, but also offered up increases in projections.

The latest earnings report noted that net earnings per share for 2020 should now come in between $7.42 and $8.92, which is a long way off even the best-case scenario a few weeks ago. The range back then was between $5.66 and $7.66. Adjusted EPS guidance took a likewise-upward turn, going from between $6.60 and $8.60 to between $7.50 and $9.00. FactSet, meanwhile, has established its consensus on the high end of of that range, projecting earnings per share of $8.28. Total revenue also got an upward goose, going from between $8 billion and $8.6 billion to between $8.4 and $8.8 billion. FactSet again is leaning toward the higher end, expecting $8.69 billion.

An Improving Picture

Some who follow Quest Diagnostics likely remember the mess that took place a couple weeks ago, when the state of Florida cut ties with the company amid a massive backlog of delayed tests. Tests have to be done rapidly in order to have any real impact, and at last report, the company had around 75,000 such tests get delayed in processing. That was enough for Florida to cut bait, and the company's stock price took a hit accordingly.

At the time, Quest cited a “technical error,” and noted that those who took the tests got results just fine, but the results weren't transferred on to the Department of Health in Florida. That made the overall picture the government had to work with at the time that much more murky, but in the days that followed, Quest noted that it had improved its processes and was back in full play. That may not be enough to win the Florida business back, but it may be enough to keep the current crew in the fold.

A Business that Learns is Worth Considering

Sure, Quest dropped the ball with Florida and lost a slug of business. It learned from its mistakes, though, and improved its processes accordingly. It also revealed recently that it's dropped its turnaround time for testing down to “one to two days for all patients”, though it also warned that things could go wrong in the meantime.

This is a great attitude for a company to have; it's working hard to improve, and at the same time acknowledges that unexpected problems may emerge. Better yet, it's warning potential customers about that lag in advance so that the customer can plan accordingly. That elevates Quest to among the best in coronavirus test providers around, and should give its investors a further shot of hope in the process. Our own research considers it a “hold”, with nine “hold” ratings and eight “buy” ratings in place, and no “sell” or “strong buy” ratings to be seen.

Improving revenue, improving earnings, improving processes; all of these are good signs, and with the company currently trading at levels it saw back in 2019 before all this hit, there's every reason to consider adding Quest Diagnostics to your portfolio.