Analyst Note
| Debbie S. Wang |The omicron surge helped extend Quest Diagnostics’ relatively strong top-line growth into the first quarter of 2022. Despite management’s adjustments to the lower end of its COVID-19 outlook, we’re leaving our fair value estimate unchanged, as we expect demand for pandemic-related tests will decline significantly through this year, and our top- and bottom-line assumptions remain bounded by the revised outlook. Though operating margin should continue to moderate this year as COVID-19 PCR tests decline, we remain confident in the firm’s superior cost advantage, which supports its narrow economic moat. We view this cost advantage as a key factor that allows Quest to engage in value-based reimbursement programs and partner with the largest commercial payers, including UnitedHealth and Anthem.