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Here's Why Quest Diagnostics Made Investors Happy With Its Q3 Results

By Keith Speights – Oct 22, 2020 at 1:08PM

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The company's business appears to be recovering nicely from the COVID-19 pandemic.

Quest Diagnostics (DGX -0.91%) has taken investors on a roller-coaster ride so far in 2020. But the ride has been a fun one over the last couple of months as the diagnostics provider's share price has steadily moved higher.

Investors will likely continue to enjoy this ride after Quest announced its third-quarter results before the market opened on Thursday. Here are the highlights from the company's Q3 update.

Male healthcare provider standing with his arms crossed while smiling

Image Source: Getty Images.

By the numbers

Quest reported revenue in the third quarter of $2.79 billion, up 42.5% year over year. This result topped the average analysts' estimate of $2.73 billion.

The company announced net income of $591 million, or $4.14 per share, based on generally accepted accounting principles (GAAP). This was a big improvement from Quest's GAAP earnings of $226 million, or $1.56 per share, posted in the prior-year period. 

Quest recorded adjusted net income in the third quarter of $4.31 per share. The company's adjusted earnings result reflected a year-over-year increase of 145% from adjusted earnings of $1.76 generated in the third quarter of 2019. It also handily beat the consensus analysts' adjusted earnings estimate of $3.73 per share.

Behind the numbers

The COVID-19 pandemic hurt Quest's business earlier this year. The situation improved significantly in the third quarter, though.

Quest Diagnostics CEO Steve Rusckowski said that the company has "seen further signs of the healthcare system returning to pre-pandemic levels." He noted that Quest's base testing volume excluding COVID-19 testing recovered to some extent in Q3. However, he added that "organic volumes in our base business were down mid-to-high single digits compared to last year."

The company also directly benefited from the COVID-19 pandemic in the third quarter. Rusckowski said, "Quest has performed over 22 million COVID-19 molecular and serology tests to date, more than any other provider. We also developed and introduced several new innovations that are contributing to enabling the country's return to work, the classroom, and the athletic field."

Quest also announced a surprise. The company received federal financial assistance earlier this year made possible through the CARES Act coronavirus relief legislation. Quest is returning these funds because it no longer needs the money. Rusckowski stated that giving the money back to the U.S. government "is the right thing to do."

Looking ahead

The ongoing COVID-19 pandemic remains the biggest threat for the healthcare stock. However, as a result of its solid Q3 performance, Quest raised its full-year 2020 guidance.

The company now anticipates full-year revenue of between $8.8 billion and $9.1 billion, up from its previous outlook of $8.4 billion to $8.8 billion. Quest projects GAAP earnings per share (EPS) will be between $8.22 and $9.22, up from its previous forecast of a range of $7.42 to $8.92. Non-GAAP EPS is expected to be between $9 and $10, up from the previous guidance of $7.50 to $9.

Quest also has an intriguing pilot program underway that investors will probably want to watch. Last month, Quest and Walmart announced they were teaming up to test drone delivery of COVID-19 test kits. This test will initially be conducted in the Las Vegas area but could expand to other locations if it's successful. 

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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