Quest Diagnostics Reports Record Revenue; CEO Stephen Rusckowski To Retire

Image source: Quest Diagnostics

Quest Diagnostics DGX  finished a challenging 2021 with a strong fourth quarter that modestly beat analyst estimates.

The world’s leading provider of diagnostic information services posted Q4 revenue of $2.74 billion, down 8.6% versus 2020. Diluted EPS came in at $3.12, or $3.33 on an adjusted basis, down 25.7% from last year.

Analysts were looking for $3.21 per share on revenue of $2.62 billion.

For the year, Quest reported record revenues of $10.79 billion, up 14.3% from last year, and full year diluted EPS of $15.55, or $14.24 on an adjusted basis, up 27.4% from 2020.

Cash from operations totaled $2.23 billion in 2021, up 11.4% from 2020.

CEO Rusckowski to step down in October 2022

Concurrent with its earnings report, Quest announced that CEO Stephen Rusckowski will be retiring effective October 31, 2022, after 10 years at the helm.

Under his tenure, the company nearly doubled revenues by focusing on advanced diagnostics and its consumer testing business, and a highly acquisitive strategy through which over 40 companies were bolted onto Quest.

Rusckowski will be succeeded by James E. Davis, currently Quest's EVP, General Diagnostics, the division responsible for over 80% of the company's revenue. Davis has been with the company since 2013.

"As I approached a decade in service as CEO, the Board and I determined that now is the right time to begin to turn the helm over to a new leader," said Rusckowski, "Jim Davis is extremely well qualified to be CEO, having managed a large part of the company in his role as Executive Vice President. He has deep knowledge of Quest, the healthcare industry, and the corporate world, gained through more than 35 years of business experience. Jim is widely respected and will be a strong CEO."

Rusckowski will continue to serve as Executive Chairman of Quest's Board of Directors through March 2023.   

Investment thesis after recent selloff

Quest stock is down nearly 22% since peaking at $174.16 in December 2021. The selling seems overdone, and we think investors have an opportunity to establish a new baseline at current levels.

• While the company has guided expectations lower for 2022 to revenue of between $9.0 billion and $9.5 billion and adjusted diluted EPS of between $8.65 and $9.35, we think much of that has been baked into the stock price's move over the past two months.
• COVID-19 testing is expected to naturally decrease, but the company is calling for an increase in its base business to between $8.3 billion and $8.5 billion, up 3.5% to 6.0% over 2021.
• Hospital health system revenues have grown more than 20% compared to 2019 pre-pandemic levels, and that excludes COVID-19 testing.
• We expect the industry consolidation of recent years to continue, and for Quest to continue to be a beneficiary.
• Advanced diagnostics is one of the fastest growing areas for Quest, and the company is well positioned to maintain this growth, organically and through further acquisitions.
• The company increased its quarterly dividend 6.5% in Q4.

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Source: Equities News