Quest (NYSE:DGX) Surprises With Q2 Sales

Healthcare diagnostics company Quest Diagnostics (NYSE:DGX) announced better-than-expected revenue in Q2 CY2025, with sales up 15.2% year on year to $2.76 billion. The company’s full-year revenue guidance of $10.86 billion at the midpoint came in 0.6% above analysts’ estimates. Its non-GAAP profit of $2.62 per share was 1.9% above analysts’ consensus estimates.

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Company Overview

Processing approximately one-third of the adult U.S. population's lab tests annually, Quest Diagnostics (NYSE:DGX) provides laboratory testing and diagnostic information services to patients, physicians, hospitals, and other healthcare providers across the United States.

Revenue Growth

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Quest’s sales grew at a mediocre 6.9% compounded annual growth rate over the last five years. This was below our standard for the healthcare sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Quest’s recent performance shows its demand has slowed as its annualized revenue growth of 5.3% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its number of requisition volumes. Over the last two years, Quest’s requisition volumes averaged 6.5% year-on-year growth. Because this number is in line with its revenue growth, we can see the company kept its prices fairly consistent.

This quarter, Quest reported year-on-year revenue growth of 15.2%, and its $2.76 billion of revenue exceeded Wall Street’s estimates by 1.4%.

Looking ahead, sell-side analysts expect revenue to grow 4.3% over the next 12 months, similar to its two-year rate. This projection is underwhelming and implies its newer products and services will not lead to better top-line performance yet.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

Quest has managed its cost base well over the last five years. It demonstrated solid profitability for a healthcare business, producing an average operating margin of 17.1%.

Analyzing the trend in its profitability, Quest’s operating margin decreased by 10.5 percentage points over the last five years, but it rose by 1.6 percentage points on a two-year basis. Still, shareholders will want to see Quest become more profitable in the future.

In Q2, Quest generated an operating margin profit margin of 15.9%, up 1.1 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Quest’s EPS grew at a remarkable 10.1% compounded annual growth rate over the last five years, higher than its 6.9% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

Diving into Quest’s quality of earnings can give us a better understanding of its performance. A five-year view shows that Quest has repurchased its stock, shrinking its share count by 16.9%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q2, Quest reported EPS at $2.62, up from $2.35 in the same quarter last year. This print beat analysts’ estimates by 1.9%. Over the next 12 months, Wall Street expects Quest’s full-year EPS of $9.37 to grow 7.6%.

Key Takeaways from Quest’s Q2 Results

It was good to see Quest narrowly top analysts’ revenue expectations this quarter. We were also glad its full-year revenue guidance slightly exceeded Wall Street’s estimates and its full-year EPS guidance was raised from previous. Overall, this print had some key positives. The stock traded up 3% to $171.54 immediately following the results.

So do we think Quest is an attractive buy at the current price? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.