Quest Diagnostics (DGX) Is Today's Water-Logged And Getting Wetter Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Quest Diagnostics ( DGX) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Quest Diagnostics as such a stock due to the following factors:

  • DGX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $118.8 million.
  • DGX has traded 4.0 million shares today.
  • DGX traded in a range 201.7% of the normal price range with a price range of $1.88.
  • DGX traded below its daily resistance level (quality: 228 days, meaning that the stock is crossing a resistance level set by the last 228 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on DGX:

Quest Diagnostics Incorporated provides diagnostic testing information services in the United States and internationally. The company operates in two businesses, Diagnostic Information Services and Diagnostic Solutions. The stock currently has a dividend yield of 2%. DGX has a PE ratio of 11.5. Currently there are 4 analysts that rate Quest Diagnostics a buy, 3 analysts rate it a sell, and 10 rate it a hold.

The average volume for Quest Diagnostics has been 1.9 million shares per day over the past 30 days. Quest has a market cap of $8.7 billion and is part of the health care sector and health services industry. The stock has a beta of 0.73 and a short float of 11.5% with 8.92 days to cover. Shares are up 3% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Quest Diagnostics as a buy. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, increase in net income, notable return on equity, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • QUEST DIAGNOSTICS INC reported significant earnings per share improvement 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 year. We feel that this trend should continue. During the past fiscal year, QUEST DIAGNOSTICS INC increased its bottom line by earning $3.85 versus $2.96 in the prior year. This year, the market expects an improvement in earnings ($3.90 versus $3.85).
  • 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 148.4% when compared to the same quarter one year prior, rising from $163.08 million to $405.14 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Health Care Providers & Services industry and the overall market, QUEST DIAGNOSTICS INC's return on equity exceeds that of both the industry average and the S&P 500.
  • 42.44% is the gross profit margin for QUEST DIAGNOSTICS INC which we consider to be strong. Regardless of DGX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DGX's net profit margin of 22.66% significantly outperformed against the industry.
  • The debt-to-equity ratio is somewhat low, currently at 0.88, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.87 is somewhat weak and could be cause for future problems.

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