Barbarian At The Gate: Quest Diagnostics (DGX)

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.

Trade-Ideas LLC identified Quest Diagnostics ( DGX) as a "barbarian at the gate" (strong stocks crossing above resistance 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 $82.1 million.
  • DGX has traded 570,455 shares today.
  • DGX traded in a range 274.7% of the normal price range with a price range of $2.37.
  • DGX traded above its daily resistance level (quality: 12 days, meaning that the stock is crossing a resistance level set by the last 12 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' 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 positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on DGX:

Quest Diagnostics Incorporated provides diagnostic testing information services in the United States and internationally. The stock currently has a dividend yield of 2.1%. DGX has a PE ratio of 21. Currently there are 3 analysts that rate Quest Diagnostics a buy, 3 analysts rate it a sell, and 14 rate it a hold.

The average volume for Quest Diagnostics has been 1.7 million shares per day over the past 30 days. Quest has a market cap of $10.4 billion and is part of the health care sector and health services industry. The stock has a beta of -0.01 and a short float of 10.3% with 11.90 days to cover. Shares are up 7.5% year-to-date as of the close of trading on Wednesday.

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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 revenue growth, expanding profit margins and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 13.0%. Since the same quarter one year prior, revenues slightly increased by 5.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • 40.95% is the gross profit margin for QUEST DIAGNOSTICS INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 3.31% is above that of the industry average.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • QUEST DIAGNOSTICS INC's earnings per share declined by 40.8% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, QUEST DIAGNOSTICS INC reported lower earnings of $3.77 versus $5.34 in the prior year. This year, the market expects an improvement in earnings ($4.78 versus $3.77).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Health Care Providers & Services industry. The net income has significantly decreased by 41.3% when compared to the same quarter one year ago, falling from $104.00 million to $61.00 million.

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