Analyst Note| Debbie S. Wang |
Quest Diagnostics delivered third-quarter results that ran slightly ahead of our expectations as demand for COVID-19 testing saw a surge thanks to the delta variant. We’ve modestly raised our fair value estimate to $140 per share, up from $130, with roughly one third of the boost coming from our expectation that declines in pandemic test volume will be somewhat more gradual than we’d originally anticipated and the remainder coming from an adjustment to the share count to reflect recent repurchase activity. While we anticipate the course of the pandemic will remain a key factor for Quest through 2022, we remain confident in the firm’s narrow economic moat. Although Quest has seen some pressure on labor and transportation costs, all competitors in this arena face the same conditions and there’s little to suggest this has diminished Quest’s cost advantage.