About Quest Diagnostics
Stuffy, egregiously bright fluorescent lighting, and depressing. There are some of the words that come to mind when describing a Quest Diagnostics clinic. At least, that’s been our experience. But don’t let our description fool you; Quest does a lot of important work.
New Jersey-based Quest Diagnostics is a leader in the lab testing industry. It holds nearly 7,000 facilities nationwide, where lab work ranging from basic blood work to COVID-19 testing is performed.
Quest does most of its business in the United States. However, Quest has labs and other global businesses in Brazil, Puerto Rico and Mexico.
Quest Diagnostic’s financials
Let’s start with simple numbers.
You walk into a Quest Diagnostics branch. Aside from patients, there may be three or four employees confined in a relatively small workspace. You notice digital check-in devices near their front desk, where customers simply scan their form of identification, check-in, and wait for their name to be called.
One of my favorite aspects of Quest Diagnostics as an investor is their naturally low labor costs.
Delving into the company’s financials, Quest reported 2020 revenues of approximately $9.4 billion. Additionally, Quest has a market capitalization of nearly $19 billion.
Quest also has an undervalued price to earnings ratio of 9.29; greater than 20 is generally seen as overvalued. They also distribute an annual dividend of $2.48, on top of preserving a healthy balance sheet.
Another notable figure we found digging through Quest’s financials is their exceptional annual return on investment. While the industry’s average stands at 1.65%, Quest’s stands at 18.7%.
Ubiquitous, solid debt coverage, and a stronghold in a competitive but always-needed industry; only a few of the perks of owning a stake in Quest Diagnostics.
Quest Diagnostic’s future
Whenever public health concerns arise, the lab beast will perform well. As a timely example, with threats of the omicron variant, the demand for COVID-19 and other types of antiviral testing will increase.
Quest will also continue growing its subsidiary businesses too.
For instance, Quest owns ExamOne. They are a major player in the health space, providing assistance for life insurance underwriting companies. This subsidiary, among a few others under the Quest umbrella, does not face recessionary pressures as harshly as many other companies do.
Should you buy Quest Diagnostic stock?
Even if the worst-case scenario happens for the stock and COVID-19 is gone forever (again, from an investment perspective), Quest still has plenty to offer its patients and shareholders. Not only do we see Quest Diagnostics as a solid stock pick, but also as one of the few currently undervalued publicly traded corporations.
Going forward, Quest will grow boringly yet predictably (primarily through acquisitions). Quest is a buy and forget about kind of stock.
We currently give the company a “buy” rating.