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On Tuesday, Citi analysts downgraded Quest Diagnostics (NYSE:DGX) stock from Buy to Neutral, setting a new price target of $185.00. The change in rating comes amid concerns over margin pressures and earnings growth prospects for the company. The stock, currently trading at $176.95, sits near its 52-week high of $178.09, with InvestingPro data showing a P/E ratio of 22.48x and revenue growth of 6.7% over the last twelve months. Citi’s analysis indicates that while Quest Diagnostics is in a position to benefit from current high utilization rates, challenges such as margin headwinds from LifeLabs and dilution from the Haystack launch are anticipated to impact financial performance.
The report from Citi suggests that the current valuation multiple of approximately 16.3 times earnings is not likely to hold. Analysts expect the multiple to adjust closer to the 2-year pre-pandemic average of around 15 times price-to-earnings (P/E). This adjustment reflects the anticipated pressure on margins and earnings growth for Quest Diagnostics. According to InvestingPro analysis, the stock appears overvalued at current levels, with seven analysts recently revising their earnings estimates downward for the upcoming period.
Quest Diagnostics has been navigating a dynamic healthcare landscape, where elevated utilization rates present both opportunities and challenges. The company’s recent endeavors, including the LifeLabs partnership and the launch of Haystack, are strategic moves aiming to enhance its service offerings and market reach. Despite these challenges, Quest maintains strong financial health with a "Good" overall score of 2.82 from InvestingPro, and has impressively maintained dividend payments for 22 consecutive years, with 13 years of consecutive dividend increases. Get access to 8 more exclusive ProTips and comprehensive analysis through InvestingPro’s detailed research reports.
The downgraded rating to Neutral by Citi is based on a comprehensive evaluation of Quest Diagnostics’ financial outlook. The analysts have taken into account the potential risks that could impede the company’s earnings growth. With a market capitalization of $19.64 billion and a gross profit margin of 33.13%, Quest remains a prominent player in the Healthcare Providers & Services industry. However, the anticipated margin headwinds and the effects of the Haystack launch are significant factors in the revised rating and price target.
As the market processes this updated assessment from Citi, investors and stakeholders of Quest Diagnostics will be closely monitoring the company’s financial performance in the coming periods. The new price target of $185.00 reflects the analysts’ expectations in light of the identified challenges and the valuation multiple adjustment. Quest Diagnostics’ stock performance will continue to be a subject of interest as the company progresses with its strategic initiatives and responds to the evolving healthcare environment.
In other recent news, Quest Diagnostics has reported impressive financial results for the fourth quarter of 2024, surpassing earnings expectations with an adjusted earnings per share (EPS) of $2.23, exceeding the forecast of $2.19. The company’s revenue also outperformed projections, reaching $2.62 billion against the anticipated $2.58 billion, marking a 14.5% year-over-year increase in consolidated revenues. Quest Diagnostics has projected revenue for 2025 to be between $10.7 billion and $10.85 billion, with an expected organic growth rate of approximately 3%. The company anticipates an adjusted EPS in the range of $9.55 to $9.80 for the same period.
Additionally, JPMorgan has raised its price target for Quest Diagnostics to $180 from the previous $173, maintaining a Neutral stock rating. This adjustment follows the company’s robust fourth-quarter performance and an optimistic outlook for revenue and operating income growth in 2025. Quest Diagnostics has also made significant strides in advanced diagnostics and preventative health services, contributing to its strong financial performance. The company is making continued investments in IT infrastructure and automation to support its future growth, aligning with broader industry trends towards wellness and early detection.
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