While the COVID-19 pandemic highlighted the importance of diagnostics and research services, the industry’s growth is expected to be sustained with increasing government funding and the prevalence of various chronic diseases that require therapies. So, we think it could be wise to bet on quality diagnostics and research stocks Danaher Corporation (DHR) and Quest Diagnostics (DGX). These companies demonstrated strong financials, outperforming consensus earnings estimates in their last reported quarter. So, let’s discuss.
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The COVID-19 pandemic has accelerated the growth of the diagnostics and research industry over the past year. And over the past few months, the resurgence of COVID-19 cases has further enhanced growth opportunities for several companies in this space. The prevalence of various chronic diseases and a rising demand for health care from an aging population should also drive the industry’s growth.
Furthermore, increasing government initiatives and investments in the healthcare sector and the integration of advanced technologies bode well for the diagnostic and research industry. Indeed, the clinical diagnostic market is expected to reach $93.85 billion by 2026, registering a 6.1% CAGR.
Given this backdrop, we think the shares of diagnostic and research companies Danaher Corporation (DHR) and Quest Diagnostics Incorporated (DGX) could be solid bets now because these companies topped analyst estimates for their third-quarter earnings.
Danaher Corporation (DHR)
DHR in Washington, D.C., is a multinational science and technology pioneer that develops, manufactures, and markets professional, medical, industrial, and commercial products and services worldwide. Its world-class brands hold leading positions in the demanding health care, environmental, and applied end markets.
In July, Cytiva and Pall Corporation, which is part of DHR, announced the expansion of production capacity and services across regions for global life sciences customers as part of an ongoing strategic expansion plan. This move should expand the production of essential items needed in biologic medicines and allow the company to fulfill its customers’ and patients’ current and future needs.
For its fiscal third quarter, ended October 01, 2021, DHR’s sales rose 22.9% from their year-ago value to $7.23 billion. Its operating profit increased 20.3% year-over-year to $1.31 billion, while its net income grew 32.7% from the prior-year quarter to $1.12 billion. Its $2.39 adjusted EPS for the quarter increased 39% year-over-year, beating the consensus estimate by 11.2%.
A $9.64 consensus EPS estimate for the current year indicates a 52.8% improvement year-over-year. Analysts expect DHR’s revenue to increase 29.4% year-over-year to $28.84 billion in its fiscal year 2021. The stock has gained 33.9% in price over the past year and 41.1% so far this year.
DHR’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
DHR is also rated an A grade for Sentiment, and a B for Growth and Stability. Within the Medical – Devices & Equipment industry, it is ranked #35 of 181 stocks.
To see additional POWR Ratings for Momentum, Value, and Quality for DHR, click here.
Click here to checkout our Healthcare Sector Report for 2021
Quest Diagnostics Incorporated (DGX)
DGX is a leading cancer and genetics diagnostics company. Its expertise spans diagnostic services, from screening and diagnosis to treatment selection, prognosis, and recurrence monitoring. It offers services under the brands Quest Diagnostics, AmeriPath, Dermpath Diagnostics, ExamOne, and Quanum. DGX is headquartered in Madison, N.J.
This month, DGX completed integrating its Northeast regional operations into its new 250,000-square-foot next-generation lab facility in Clifton, N.J. The laboratory is expected to conduct high-volume diagnostic testing services for more than 40 million people per year in seven states in the Northeast, offering enhanced productivity, higher medical quality, and capacity to satisfy current and future regional demands.
For the third quarter, ended September 30, 2021, DGX’s net revenue came in at $2.77 million. The company reported $652 million in operating income. Its net income was $505 million. Its $3.96 adjusted EPS beat the consensus estimate by 38%. In addition, the company’s net cash from operating activities increased 19.7% year-over-year to $1.75 billion. The company also raised its full-year outlook.
Analysts expect KFY’s revenue to increase 7.7% year-over-year to $10.17 billion in its fiscal year 2021. In addition, the company’s EPS is expected to grow 8% in the current year. Over the past year, the stock has gained 16% in price and 22.9% year-to-date.
DGX’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. DGX is also rated a B grade for Value and Quality. Within the Medical – Diagnostics/Research industry, it is ranked #8 of 58 stocks.
Click here to see additional POWR Ratings for Stability, Momentum, Growth, and Sentiment for DGX.
Click here to checkout our Healthcare Sector Report for 2021
DHR shares were unchanged in premarket trading Monday. Year-to-date, DHR has gained 41.42%, versus a 22.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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