On Monday, Leerink Partners analyst Michael Cherny upgraded shares of Quest Diagnostics (NYSE:DGX) stock from Market Perform to Outperform, increasing the price target from $169 to $174. The upgrade reflects a positive outlook based on a new target multiple of approximately 18 times the calendar year 2025 (CY25) price-to-earnings (P/E), up from the previous 17.5 times.
Cherny's optimism for Quest Diagnostics is rooted in the company's consistent performance, driven by steady testing volumes, stable pricing, an improved mix of tests per visit, and a robust mergers and acquisitions (M&A) pipeline. These factors are believed to contribute to the company's ongoing positive operating results.
The analyst expects these trends to continue into the fiscal year 2025 (FY25), supported by a strong start to the year as flu and respiratory test volumes increase.
Quest Diagnostics' preliminary outlook suggests high-single-digit earnings per share (EPS) growth for FY25, aligning closely with Leerink's estimate of 9% growth. The analyst anticipates that this growth may even exceed expectations throughout FY25 due to the impact of recent acquisitions, particularly the LifeLabs purchase in Canada and a surge in hospital outreach acquisitions. These deals are expected to gradually build margins and create incremental contributions to the company's financials.
While uncertainties always exist, Cherny believes that in the current environment of positive utilization and pricing, Quest Diagnostics offers an attractive risk/reward scenario with significant upside potential and limited downside risks. The company's strategic initiatives and market position appear to set the stage for continued success in the coming year.
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