Shares of Quest Diagnostics Inc. jumped Tuesday after the medical laboratory and research products company's second-quarter profit beat Wall Street expectations and it lifted the lower end of its full-year profit guidance.
The stock gained $2.65, or 5.2 percent, to close at $54 on double average volume. Shares have traded between $43.65 and $58.63 over the last 52 weeks.
The results should help ease worries from some corners that a weak economy, coupled with Quest's increased investments, is hurting the company, said Lehman Brothers analyst Adam Feinstein.
"Neither of these issues created any problem," he wrote in a note to investors.
The Madison, N.J.-based company's profit reached 83 cents per share, topping Wall Street's average 78-cent forecast. Revenue rose 12 percent to $1.84 billion, matching expectations. The company gained a key boost from the buyout of cancer testing firm AmeriPath, which helped increase testing volume and revenue.
Looking ahead, the company raised the low end of its 2008 forecast, now expecting to earn between $3.10 and $3.20 per share for the full year, up from prior estimates of $3 to $3.20. Quest reaffirmed its revenue outlook calling for 9 percent growth. Based on the company's unaudited 2007 results, that implies $7.31 billion in sales.
On average, analysts surveyed by Thomson Financial expect profit of $3.13 per share on $7.3 billion in revenue.
Quest services hospitals that use testing products and equipment as well as the drug development industry, which includes pharmaceutical companies. Drug developers have been outsourcing more of their clinical laboratory work in an effort to cut costs, helping to boost revenue throughout the clinical research organization industry.
Feinstein highlighted the fact that this is Quest's second straight quarter with year-over-year margin growth since the company lost a contract with UnitedHealth Group Inc. Also, bad debt declined. He did voice concern over some cost savings being offset by investments in information technology and India.
He reaffirmed an "Overweight" rating. Meanwhile, Oppenheimer & Co. analyst Balaji Gandhi reaffirmed a "Perform" rating and Citi analyst Gary Taylor backed a "Buy" rating.
Elsewhere in the sector, shares of several peers gained ground following Quest's positive earnings report, including Waltham, Mass.-based PerkinElmer Inc. and Thermo Fisher Scientific Inc.
PerkinElmer shares rose $1.45, or 5.2 percent, to reach $29.11 while Thermo shares rose $3.20, or 5.7 percent, to $59.33. Both companies report second-quarter results on Thursday. Meanwhile, shares of Milford, Mass.-based Waters Corp. rose $6.91, or 11.1 percent, to $69.23 after the company reported a 38.7 percent surge in profit.
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