Quest Faces Growing COVID-19 Headwinds, but Moat Remains Stable; Modest Cut to Our FVE

Quest Diagnostics posted fourth-quarter results that generally met our expectations in terms of revenue and earnings growth. However, we’ve modestly lowered our fair value estimate to $143 per share, after trimming our projections for COVID-19 testing revenue in 2022. The pandemic remains the near-term driver for Quest, with fourth-quarter COVID-19 revenue accounting for roughly one quarter of total sales. With the delta and omicron variants bookending the fourth quarter, Quest’s COVID-19-related quarterly revenue fell 37% compared with the excessively strong year-ago period, which in turn, drove total quarterly revenue to fall by 9%. Despite these COVID-19 headwinds stretching through this year, we think Quest’s narrow economic moat remains solid, and we see little that could diminish the firm’s cost advantage.