While labor remains a challenge, core growth trends are attractive, M&A and partnership opportunities remain brisk, and the company is seeing improved pricing, according to the analyst.

Financial flexibility remains attractive with solid FCF generation, and the analyst forecasts ongoing capital deployment to augment core trends. 

DGX continues to see attractive underlying trends, with broad-based strength across tests, geographies, and provider types following 3Q results where the company delivered base business revenue and volume growth of +4.6% and +5.7%, respectively, the analyst notes.

Furthermore, the analyst anticipates benefits from more favorable commercial pricing and increased focus on leakage and volume redirection from high price labs.

Management expects 75bps – 150bps of margin expansion from 2023 – 2026, with individual years impacted by core trends and a handful of puts and takes.

The company continues to target ~3% annual productivity improvements/savings, which provides a nice setup for long-term margin expansion alongside solid top-line growth, according to MacDonald.

The analyst sees increased utilization of optical charter recognition (OCR) technology to further improve efficiency and potentially aid in turnover.

The analyst raised the 2024 EPS estimate to $8.98 (vs. prior $8.79), while the 2025 estimate of $9.58 is unchanged.

Price Action: DGX shares are trading lower by 0.81% to $135.35 on the last check Wednesday.