Shares of Quest Diagnostics Inc (DGX) were trading at around $154.77 apiece at close on Friday, September 17, outperforming the Health Care Select Sector SPDR (XLV) $132.35, by more than 10% so far this year.

There is a high chance that the shares will rise further in the next twelve months. It appears that the triggering catalyst is strong enough to keep outpacing the sector. This stock is my favorite.

Quest Diagnostics Incorporated is a diagnostic service provider based in Secaucus (New Jersey). It provides information to healthcare professionals and patients in both the United States as well as internationally. (See DGX stock charts on TipRanks)

From the Second Quarter Report

The return to normal life after a period of restrictions and other measures to prevent the spread of the COVID-19 virus had a positive impact on the financials of Quest in the second quarter of 2021. Quest was allowed to regain access to its healthcare services. The company was also able resume doing business by signing new management agreements with hospitals.

On total revenues of about $2.55 trillion, adjusted dilutedEPS rose nearly 124% over the year to $3.18. This top line item saw a 39% increase year-over-year, surpassing projections by $170million.

The operating activities generated a greater cash flow of $460 millions in the second quarter. This was slightly more than the equivalent period for 2020, which was just a bit over 30%.

Market Prospects

In the short run, the demand for tests to detect the infection from the COVID-19 virus should remain robust, providing Quest Diagnostics with an additional source of income.

Because the Delta variant of the virus will be more prevalent in the weeks ahead, this is a good thing. The main reasons for this are people returning from holiday, lifting of restrictions and the possibility of new viruses mutating.

Its presence on the ground, providing services to fifty percent US hospitals, physicians, and other healthcare providers, means that the company can take advantage of an environment which Statista says is seeing America perform the most COVID-19-related tests of any country.

Statista also reports that healthcare providers have completed approximately 615 million COVID-19 tests in the United States as of September 17, 2021. The Institute for Health Metrics and Evaluation projects that there will be 800 million more tests before 2021 ends.

Looking Ahead to Full Year 2021

Quest Diagnostics forecasts that the adjusted diluted EPS will be between $11.65 and $12.35, compared to the consensus average of $11.59. Quest predicts that operating cash flows will exceed $2 billion by 2021.

Wall Street’s Take

In the last 3 months, nine Wall Street analysts issued a 12-month price target for Quest Diagnostics Inc. Quest Diagnostics Inc has an average target price of $162.22. This implies a 4.8% upside. Based on six Buy ratings, three Hold ratings, and zero Sell ratings, the analyst consensus rating is Moderate Buy.

Summary

There is a good likelihood the stock will continue to outperform the overall market, as the business lies on solid fundamentals. The expected increase in demand for COVID-19 molecular test will help the stock to perform well over the next few years.

Disclosure: Alberto Abaterusso had no position at the time this article was published.

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