Financial Highlights
OVERVIEW
In Quest Diagnostics’ most recent "Media Statement about COVID-19 Testing,” management reported an additional 1.3MM molecular diagnostic tests between August 4th and August 15th, translating to roughly 108,333 average tests per day, which is better than our original forecast that pushed DGX to an active Best Idea long. These averages are sequentially up from the last update and multiples above the low point of management’s current guidance. We expect COVID-19 test volume to continue rising alongside the current delta variant outbreak, but also to continue at a sustained level into 4Q21 even as case volumes subside. The net impact should be significant upside to guidance and consensus.
Delta Variant Having Significant, Prolonged Impact
According to data from the CDC, COVID-19 testing bottomed with case volume at ~500k tests per day around the first week of July after which the Delta Variant began driving case volumes across the United States to re-accelerate. Nationally, COVID testing has reached ~1M tests per day, as well as heightened positivity rates as the Delta Variant claims 97% of all COVID cases. Quest remarked they would be responding to the crisis by adding COVID testing instruments to facilities in lower vaccinated areas, such as the Southeast and Southwest. We expect the continued presence of the Delta Variant, the return of in-person activities such as school and office-based work, and the likely return of a flu season will sustain COVID-19 testing through 1Q22.
Raising our Estimates for DGX COVID-19 Testing
With last night's update, our 3Q 2021 estimate for average molecular tests per day is moving to 55.6k tests per day from 34.5k and our 4Q 2021 estimate to 31.3k tests per day from 26.6k. Our updated forecasts consider the IHME’s estimate that COVID cases will peak in the US in 1-2 weeks and do not include additional share gain or sustained COVID-19 testing throughout the peak months of the 2021-2022 flu season. We are not making any changes to our estimates for the base business at this time but would like to note that we do not expect the rise in COVID cases to hinder the organic growth of the base business.
Based on the business’ potential ceiling and utilizing the midpoint of its historical trading range, we have modeled 2021 revenue to $10.082B versus consensus of $9.679B and 2022 revenue of $8.728 versus consensus of $8.585B, yielding at least 10%-20% upside from the current price.
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Thomas Tobin
Managing Director
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