Quest Diagnostics Incorporated (DGX): A Bull Case Theory

We came across a bullish thesis on Quest Diagnostics Incorporated on Valueinvestorsclub.com by cuyler1903. In this article, we will summarize the bulls’ thesis on DGX. Quest Diagnostics Incorporated 's share was trading at $180.14 as of September 10th. DGX’s trailing and forward P/E were 21.57 and 17.06 respectively according to Yahoo Finance.

Quest Diagnostics, Inc. (DGX), based in Secaucus, New Jersey, is a leading provider of diagnostic health information services in the U.S., serving 50% of hospitals and physicians, one-third of U.S. adults, and over 90% of insured lives. In 2024, the company generated $9.9 billion in revenue and $1.9 billion in EBITDA, with expectations to reach $11.2 billion in revenue, $2.3 billion in EBITDA, and $1.2 billion in free cash flow by 2026.

Quest returns capital through a $3.20 annual dividend (1.8% yield) and opportunistic buybacks. Despite industry challenges such as high fixed costs and complex reimbursement dynamics, the market underappreciates the resilience and long-term growth potential of its model. The clinical laboratory sector is effectively a duopoly between Quest and LabCorp, giving both significant pricing power, with hospitals increasingly outsourcing lab services to them given the capital intensity and low margins of in-house operations.

This rational structure provides a durable growth runway. Quest also benefits from the habitual and recurring nature of diagnostic testing, supported by strong physician integration and patient loyalty. Unfortunate but powerful tailwinds, including the deteriorating health of the U.S. population and rising chronic disease, ensure growing demand for diagnostics, while greater societal appreciation for early detection further boosts utilization.

Diagnostic testing delivers profound value, providing life-saving insights at a fraction of downstream medical costs, positioning Quest as a critical player in cost-efficient healthcare. With EPS projected at $10.50+ in 2026 and $11.50+ in 2027, a 20x multiple implies $230/share, suggesting significant upside. DGX offers long-term compounding potential with an attractive risk/reward profile.

Previously we covered a bullish thesis on Quest Diagnostics Incorporated (DGX) by Magnus Ofstad in April 2025, which highlighted the company’s recession-resistant model, growth from acquisitions, and efficiency gains from automation. The company’s stock price has appreciated approximately by 10% since our coverage. The thesis still stands as Quest continues compounding earnings. Cuyler1903 shares a similar view but emphasizes DGX’s duopoly structure, recurring revenues, and rerating potential.

Quest Diagnostics Incorporated  is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 46 hedge fund portfolios held DGX at the end of the first quarter which was 40 in the previous quarter. While we acknowledge the potential of DGX as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.