This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

A Closer Look at Quest Diagnostics, Lab Corp and Hologic

Stock quotes in this article: DGX, LH, HOLX

NEW YORK ( TheStreet) -- Diagnostics providers such as Quest Diagnostics (DGX), Lab Corp (LH) and Hologic (HOLX) have long been sleepy and stable performers. While the Affordable Care Act may not send these stocks rocketing higher, it is likely to give them meaningful boosts to their revenue over the next 12 months.

For every individual diagnosis or treatment, there are often numerous diagnostics that must be run. But in many cases even very simple tests can be out of reach for those without insurance. Obamacare coverage is likely to result in much greater use of diagnostics for as many as 30 million new covered individuals.

However, it remains to be seen how pricing and reimbursements will be affected. Diagnostics providers have been understandably vocal against any changes that will affect pricing and margins, even though there may be a rise in volume that could more than offset declines in pricing.

Of the three diagnostic companies mentioned above, Quest is most likely going to be the safest and most stable long-term winner. At around 11 times earnings, the stock is fairly cheap, but is typically under-appreciated by the analysts.

For the first nine months of the year, the company threw off nearly half a billion dollars in operating cash flow, and it has a 2% dividend yield. Revenue has been fairly constant at around $1.8 billion per quarter, but following the onset of Obamacare, revenue could be due for a moderate increase. Gross margins are around 30% and net margins come in at around 20%, impressive for a company of this size.

In October, the company reported a slight revenue miss, resulting in numerous analyst downgrades. However, the share price has been only minimally affected. One key driver will be the recently launched BRCAdvantage gene sequencing test for hereditary breast and ovarian cancers.

The recent weakness in Quest revenue has made it a somewhat unloved stock for the short term. But this is likely to reverse itself over the next two quarters and the dividend means that investors get paid to wait.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,804.71 -238.19 -1.40%
S&P 500 1,946.16 -26.13 -1.32%
NASDAQ 4,422.0850 -71.3050 -1.59%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs