It has been about a month since the last earnings report for Quest Diagnostics Incorporated DGX. Shares have added about 1.8% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Quest Diagnostics Tops Q1 Earnings & Sales Estimates

Quest Diagnostics' first-quarter 2017 adjusted earnings per share (EPS) of $1.33 came in 13.7% ahead of the Zacks Consensus Estimate and exceeded the year-ago number by 17.7%. Adjusted EPS in the reported quarter excludes charges related to restructuring and integration, retirement of debt as well as amortization expenses. Reported EPS in the first quarter came in at $1.16, representing a year-over-year surge of 63.4%.

Reported revenues for the first quarter inched up 1.9% year over year to $1.89 billion, ahead the Zacks Consensus Estimate of $1.87 billion. According to the company, the year-over-year improvement came on the back of expanding relationships with hospital health systems and strength in several of the company’s advanced diagnostic offerings.

Volume (measured by the number of requisitions) increased 3.5% year over year during the first quarter. Revenue per requisition, however, was down 0.2%. Diagnostic information services revenues in the quarter grew 3.2% on a year-over-year basis to $1.81 billion.

Among operating expenses, cost of services during the reported quarter was $1.16 billion, up 1.8% year over year. Gross margin came in at 38.7%, a rise of 6 basis points (bps) year over year.

Selling, general and administrative expenses dropped 1.1% to $437 million in the reported quarter. Adjusted operating margin showed an improvement of 77 bps to 15.6%.

Quest Diagnostics exited the first quarter with cash and cash equivalents of $367 million, which marked a 2.2% rise from the year-ago quarter. Net cash provided by operating activities was $196 million compared with $153 million in the year-ago period.

In the first quarter, the company repurchased 1.6 million shares for $150 million.  As of Mar 31, 2017, Quest Diagnostics was left with $1.2 billion of authorization under the approved share repurchase plan.

Outlook

Quest Diagnostics reiterated its full-year 2017 revenue guidance. The company expects full-year revenues to be within the range of $7.64 billion to $7.72 billion (annualized growth of 2–3%). The current Zacks Consensus Estimate for revenues is pegged at $7.67 billion, close to the lower end of the company’s guided range.

In addition, the company’s 2017 adjusted EPS range has been raised to $5.45–$5.60 from the earlier forecast of $5.37–$5.52. The Zacks Consensus Estimate of $5.44 remains below this range.

Operating cash flow for 2017 is expected to reach $1.1 billion, unchanged from previous guidance. The current estimates for capital expenditure remain within the range of $250–$300 million (unchanged).
 

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions higher for the current quarter compared to seven lower.

Quest Diagnostics Incorporated Price and Consensus

Quest Diagnostics Incorporated Price and Consensus | Quest Diagnostics Incorporated Quote

VGM Scores

At this time, the stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with an 'D'. However, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly the stock has a Zacks Rank #2 (Buy). We are looking for an inline return from the stock in the next few months.

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