What happened
Shares of Quest Diagnostics (DGX 0.59%) sank 9.3% as of 11:54 a.m. EST on Thursday. The diagnostics services provider gave updated full-year 2018 guidance after the market closed on Wednesday. And it wasn't good news.
Quest cut its 2018 revenue outlook to $7.57 billion from its previous guidance of $7.62 billion. The company also lowered its projected GAAP earnings per share (EPS) from a range of $5.57 to $5.64 to "greater than $5.34." Quest now expects adjusted EPS for the year of "greater than $6.30" -- down from its previous guidance of $6.53 to $6.60.
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So what
In the big scheme of things, Quest Diagnostics' lower outlook doesn't matter very much. After all, the company only reduced its full-year 2018 revenue outlook by less than 1%. Quest's EPS guidance change reflected only a low-single-digit percentage drop from its previous forecast.
There was more important news from Quest Diagnostics' update for long-term investors. The company increased its dividend by 6%, marking the eighth dividend hike since 2011. That's certainly great for shareholders, especially considering that dividends boosted Quest's total return over the last 10 years from 89% to 121%.
Quest also confirmed what CFO Mark Guinan promised in the company's Q3 earnings conference call. The company reiterated its commitment to generate a revenue compound annual growth rate (CAGR) between 3% and 5% over the next four years. Quest expects an earnings CAGR between 4% and 6% during the period.
Now what
One thing to watch with Quest Diagnostics is how well things go once the company becomes part of the network for UnitedHealth Group beginning Jan. 1, 2019. This could generate better-than-expected revenue growth if the launch ramps up more quickly than anticipated.
Even more important, though, is progress on addressing new Medicare pricing for lab tests under the Protecting Access to Medicare Act of 2014 (PAMA) regulations. The lab industry experienced a setback in October with the dismissal in a U.S. District Court of a lawsuit filed by the American Clinical Laboratory Association (ACLA). However, ACLA appealed the decision and is still hoping for a legislative fix.
