Despite recent layoffs and cutbacks, diagnostic testing giant Quest Diagnostics (NYSE:DGX) is a good long-term buy for investors looking for safety because it has been extending its already impressive reach in the United States.

Based in Secaucus, N.J., Quest is the world leader in its space; the company says its 2,250 offices annually serve one in three Americans and one in two doctors and hospitals. Quest's star has been on the rise since it expanded into a partnership with UnitedHealthcare (NYSE:UNH) in 2018, with fourth-quarter 2019 revenues of $1.93 billion, up 4.8% over the same quarter in 2018.

Quest beat analyst forecasts when its first-quarter earnings were reported this week, but there was plenty of bad news, too.

A team of people in medical gear does the thing where you stack hands atop each other like "Go team!"

Image Source: Getty Images.

Revenue declined 3.7% year over year to $1.8 billion, and that was only part of the story. For the first two months of the quarter, business was up 4% -- it only cratered last month when the pandemic shutdown hit full force. The company withdrew its full-year outlook for 2020 on March 31, conceding that the pandemic had muddled economic predictions.

"We were very pleased with Quest's results in January and February, which were consistent with the full-year guidance we provided in January," said Steve Rusckowski, chairman, CEO, and president of Quest. "However, in March, we experienced a material decline in testing volumes due to the COVID-19 pandemic. During the last two weeks of March, volumes declined in excess of 40%, including COVID-19 testing."

The company took serious action to respond

The problem was, nobody was going to the doctor. Quest launched its COVID-19 molecular tests on March 9, but many if not most patients have postponed their standard medical tests in the meantime. And those tests are what helped the company see fourth-quarter adjusted diluted earnings-per-share growth of 23.7% over the same period last year. 

On April 14, Quest approved furloughs for nearly 5,500 workers -- nearly 12% of its workforce -- and asked executives and staff to take a 12-week pay cut. It also halted overtime and pay raises and suspended 401(k) matches. This month, it's also borrowed $100 million in secured financing and $100 million in unsecured financing to help it through the crisis.

But there's an upside

Quest's struggles are likely just temporary; eventually, people will feel safe going back to the doctor and all those traditional medical tests that are Quest's bread-and-butter will have to get done. That means this provides a buying opportunity for investors. Quest's share price is down a bit from its 52-week high of $118.58, having risen significantly since its low of $73.02 on April 3.

The pandemic also presents some potential buying opportunities for Quest. The company has been acquiring labs in recent years, including an agreement with Memorial Hermann Health System that expanded Quest's reach in Texas. The deal, announced in January, adds 30 diagnostic laboratories and 60 in-office laboratory sites. The current financial instability has particularly affected smaller labs, making them easier takeover targets.

The company has already performed 1 million COVID-19 molecular tests. On April 21, it also began blood-based antibody tests for COVID-19, saying it expects to be capable of 200,000 a day by mid-May. Initially, the company struggled with the number of tests, leading to a backlog at its advanced diagnostics lab in San Juan Capistrano, Calif. That's eased with the addition of 12 testing sites for coronavirus, and the company will continue to pick up business from that side even as the pandemic's curve flattens. Before people return to work, companies will want to make sure their employees aren't going to pass the disease onto coworkers.

This play will require patience

The company's fourth-quarter numbers show it will likely bounce back, although not quickly. It will be awhile before routine medical tests are performed on a regular basis. However, once that begins to happen, as a big player in testing, Quest should gain market share over smaller competitors who are also struggling.

Quest has been rewarding faithful healthcare investors with a rising dividend for the past nine years, and even amid its recent salary cuts and furloughs, the company did not cut its payout. In fact, it hiked it by $0.03 this month to $0.56 a share. Twenty years ago, Quest had $3.4 billion in net revenue; 10 years ago, that number was $7.4 billion, and last year, it was $7.7 billion. While Quest's pace of growth has slowed, it is well-positioned to survive as a leader in diagnostic testing.