In general, analysts see a 3-5% revenue increase for Quest in FY2009, on an increase in esoteric testing and stronger tests per requisition.
Meanwhile, drug testing and tests for risk assessment for life insurers will face more-challenging conditions, on softer lab managements deals.
Even so, Quest's ability to maintain modest pricing power amid a recession speaks to the vital nature of the tests provided and the company's demonstrated proficiency. The First Call FY2009/FY2010 EPS estimates for DGX are $3.70 to $4.05.
Technically, the stock has finally made it though the $50 psychologically-important resistance level with a bullish pattern, but with a P/E of 16, DGX is still undervalued, which only bolsters the Buy rating.
Stock Analysis: Quest Diagnostics is a moderate-risk stock. Consider buying a 25% position in DGX now; then buy another 25% in four months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your DGX position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $32.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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