Baird has maintained a Neutral rating on Quest Diagnostics (NYSE: NYSE:DGX) and slightly increased the price target to $155 from $154. The revision reflects raised revenue guidance and recent acquisitions.
Quest Diagnostics has updated its revenue expectations by an additional $100 million, with the new midpoint set at $9.54 billion, marking a 3.1% year-over-year increase. The rise is primarily due to the company's recent acquisitions, including PathAI, finalized in June, and the anticipated completion of Allina Health and OhioHealth deals in the third quarter.
The LifeLabs acquisition, which was recently finalized, was not factored into the updated guidance due to initial uncertainties about the closing timeline. The analyst noted that the expected first-year accretion from these acquisitions is lower than what most investors and analysts had estimated, but it aligns with Baird's projections. The guidance assumes that service utilization will remain robust but will normalize throughout 2024 as Quest Diagnostics moves past some earlier customer gains.
For 2024, Quest Diagnostics is projecting an operating margin (OM) percentage increase, driven by volume growth and productivity initiatives. Adjusted earnings per share (EPS) guidance has been raised by 8 cents on the low end and 3 cents on the high end, setting the new midpoint at $8.90, which represents a 2.1% year-over-year increase. This figure includes an anticipated negative impact of $0.06 to $0.08 in the third quarter due to the CrowdStrike (NASDAQ:CRWD) internet outage and the effects of Hurricane Beryl.
The company has maintained several guidance assumptions, including an incremental $0.20 dilution from Haystack, cash flow from operations (CFFO) of $1.3 billion, capital expenditures (CapEx) of $420 million, a consistent share count, and a net interest expense of approximately $190 million for 2024. This net interest expense does not take into account the debt financing required to complete the LifeLabs acquisition.
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