Summary
- Quest Diagnostics is the world’s leader in diagnostic information services.
- The company provides clinical testing services to patients for various types of illnesses and diseases.
- The company has contributed to the COVID-19 relief by expanding the number of tests available to the public.
Quest Diagnostics Incorporated (NYSE: DGX) is the world’s leader in diagnostic information services. With roughly 37% upside potential from current trading levels, the company is positioned well even during the current COVID-19 pandemic. DGX has contributed to the relief efforts by providing tests to the public. They have also developed a blood-based antibody test, which I believe will be a contributor to investors believing in the stock again. During the market selloff, DGX was down as low as $73.34 per share, levels not seen since April of 2016. Since the most recent selloff, the stock is currently up about 50%, but I believe there is still about 38% upside potential for the stock. This would price shares at $152. I have also priced in downside risk of 15%, where shares would trade around $95. Over the next 12-24 months, the stock is positioned well to outperform the overall market.
Background
According to the company’s annual 10-K:
"…the world's leading provider of diagnostic information services. We play a crucial role in the healthcare ecosystem, empowering people to take action to improve health outcomes. Derived from the world's largest database of clinical lab results, our diagnostic insights reveal new avenues to identify and treat disease, inspire healthy behaviors and improve health care management. In the right hands and with the right context, our diagnostic insights can inspire actions that transform lives. "
Company Overview
DGX reports revenues to two distinct business segments. The first is their Diagnostic Information Services (DIS) segment, which makes up 96% of the company’s overall revenue. The other 4% of revenue comes from the company’s Diagnostic Solutions segment. See chart after explanation of operating segments showing a breakdown of revenue. Below is a breakdown of how each segment operates and what they do.
Diagnostic Information Services
According to the company’s annual 10-K statement:
"We provide information and insights based on the industry-leading menu of routine, non-routine and advanced clinical testing and anatomic pathology testing, and other diagnostic information services. We have strong testing capabilities, including services for the predisposition, diagnosis, treatment and monitoring of cancers and other diseases, and offer advanced tests in many fields, including endocrinology, immunology, neurology and oncology."
Their clinical lab tests, “which are characterized as either routine, non-routine, or advanced, generally is performed on whole blood, serum, plasma and other body fluids, such as urine, and specimens such as microbiology samples” (10-K). Routine tests examine major organ functions, such as the kidney, heart, and liver, among others. The major tests ordered and performed in this area are blood chemistries, allergy tests, and blood cell counts. Non-routine tests are more challenging and typically require professional hands-on attention from highly skilled and trained professionals. These tests require advanced technology and materials, and thus, it may not be cost-effective for hospitals, IDNs (Integrated Delivery Networks), or smaller physician labs to offer these specific tests. Therefore, the majority of these tests are outsourced to clinical testing facilities with the expertise and ability to perform the tests. Advanced testing analyzes molecular diagnostics, oncology, and germline genetic testing.
DGX has a nationwide network of laboratories, including advanced labs and rapid response labs. The rapid response labs are used specifically for routine only testing services to customers who require a quick response. The company’s employees include medical directors, scientific directors, and genetic counselors who all assist in providing consultation services to healthcare providers and patients in regard to the tests and test results.
