Quest Diagnostics: Pull-back is Buy opportunity

Posted Oct 14th 2009 12:30PM by Joseph Lazzaro
Filed under: Products and Services, Recession

The nation is on the cusp of historic and civilization-advancing change with the upcoming health care reform bill, and that change bodes well for Quest Diagnostics (NYSE: DGX), which is why I'm reiterating my Buy rating for the company, first recommended on June 25, 2009, at a price of $55.89.

Quest's positive story remains the same: diagnostic tests are at the core of health care services, and even though the number of tests per citizen will likely decline in the years ahead, when one adds 30-45 million more citizens regularly accessing health care services annually, within 10 years, the probability of increased business is high, to say the least.

Short-term, fewer pre-employment tests, due to the U.S.'s high unemployment rate, will weigh on revenue. The First Call FY2009/FY2010 EPS estimates for DGX are $3.79 to $4.12.

Technically, Quest's stock chart is in an uptrend. The stock did dance with the 50-day moving average over the summer, after pulling back from a high around $57, but view that as a constructive correction -- as a Buy opportunity -- following a substantial rise from $42 in March.

Stock Analysis: Quest Diagnostics is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in DGX now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your DGX position before December 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.

Tags: DGX, health care reform, inthenews, Quest Diagnostics