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Raymond James Upgrades Quest to Outperform

NEW YORK (GenomeWeb) – Raymond James today upgraded its rating for shares of Quest Diagnostics to Outperform, based on expected growth in professional laboratory services and M&A activity.

The investment bank previously had a Market Perform rating on the company. Analyst Nicholas Jansen set a price target on Quest's stock of $116, and in a research note wrote that "operating EPS, which has generally matched [consensus Wall Street estimates] over the last two years, is poised for greater upside as recent initiatives further restore growth, and M&A is successfully executed upon."

He noted that professional laboratory service agreements and outreach deals could ramp up as implementation of the Protecting Access to Medicare Act approaches. The legislation is expected to lead to changes to the clinical laboratory fee schedule that could prove beneficial to Quest's M&A pipeline.

Further, deals that Quest has struck with Safeway and "should enhance Quest access and lower costs." On a conference call yesterday following the release of its first quarter financial results, Quest said it has expanded testing services to 65 supermarkets and expects to grow that number to 200 by the end of the year.

Jansen also noted that Quest has posted two straight quarters of growth in its adjusted earnings before interest and taxes and estimated that even after an "attractive" dividend, will be able to pursue both acquisitions and share repurchases.

"Buybacks have accelerated recently ($300M over the last two quarters) and comments on the M&A pipeline would support a step-up in activity in the coming quarters," he said.

In afternoon trading on the NYSE, shares of Quest were down less than one percent at $103.80.