TSC Ratings' Updates: Quest Diagnostics

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

The following ratings changes were generated on Friday, April 24.

We rate Quest Diagnostics (DGX) a buy. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover.

The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, compelling growth in net income, expanding profit margins and good cash flow from operations. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Revenue growth has slightly outpaced the industry average of 0.4%. Since the same quarter one year prior, revenues slightly increased by 1.3%. Growth in the company's revenue appears to have helped boost the earnings per share.

Quest has improved earnings per share by 23.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Quest increased its bottom line by earning $3.23 versus $2.84 in the prior year. This year, the market expects an improvement in earnings ($3.70 versus $3.23).

The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Providers & Services industry. The net income increased by 19.7% when compared to the same quarter one year prior, going from $139.61 million to $167.10 million. 44.80% is the gross profit margin for Quest, which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 9.20% is above that of the industry average.

Net operating cash flow has significantly increased by 72.75% to $272.80 million when compared to the same quarter last year. Despite an increase in cash flow, Quest's cash flow growth rate is still lower than the industry average growth rate of 117.40%.