KeyBanc Upgrades Quest Diagnostics, Says Lab Company's Guidance 'Very Cautious'

Quest Diagnostics Inc DGX is generating estimated earnings of around $1 per share from COVID-19 lab tests and the Public Health Emergency declaration could continue well into 2021, according to KeyBanc Capital Markets.

The Quest Diagnostics Analyst: Donald Hooker upgraded Quest Diagnostics from Sector Weight to Overweight with an unchanged $144 price target. 

The Quest Diagnostics Thesis: Based on the trends through July, COVID-19 molecular and antibody testing alone could boost Quest's revenue by over $1.8 billion and earnings by more than 5 cents per share in the second half of 2020, Hooker said in the upgrade note.

The demand for COVID-19 testing is likely to remain at this elevated level through mid-2021, the analyst said. To reflect this, KeyBanc raised its earnings estimates for 2020 and 2021 from $8.46 to $9 and from $8.83 to $9.10, respectively.

These estimates are significantly higher than management’s guidance, which appears "very cautious," the analyst said. 

“Also, patients have re-engaged with the broader healthcare system faster we had expected, resulting in a sharp recovery in DGX’s core lab testing,” Hooker said.

The company was able to maintain its balance sheet strength through the virus outbreak, which is impressive, the analyst said. 

DGX Price Action: Shares of Quest Diagnostics were trading up 1.6% at $125.43 at last check Wednesday. 

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