Quest Diagnostics Gets Positive Prognosis In Light Of UnitedHealth Partnership

In the month since Quest Diagnostics Inc DGX announced a strategic partnership with UnitedHealth Group Inc UNH, the stock has garnered a slew of upgrades.

The Rating

Barclays analyst Jack Meehan upgraded Quest to Overweight and raised his price target from $120 to $130.

The Thesis

Quest’s year-over-year growth lags far behind that of the S&P 500, but Barclays considers the firm underappreciated in an evolving industry.

“We believe Quest has a long runway to deliver on its strategy to accelerate growth and deliver operational excellence,” Meehan wrote in a Monday note.

Meehan anticipates the new payor paradigm creating fresh opportunities for lab consolidation and new data services. His surveys suggest Quest and Laboratory Corp. of America Holdings LH will gain market share when UnitedHealth begins sharing savings with preferred, lower-cost labs.

At the same time, benefit programs could be redesigned to incentivize physician and patient use of Quest, and lab mergers could accelerate as Quest is empowered to underwrite more revenue.

“We recommend owning shares as the new payor paradigm accelerates opportunities for lab consolidation and new data service opportunities,” Meehan wrote.

Price Action

At time of publication, shares were trading up 1.8 percent at $114.13.

Related Links:

Labs Are 'Relative Safe Havens' In Health Care Services, Morgan Stanley Says

WHO Deems The Products Of These Diagnostic Companies 'Essential'