Quest Diagnostics Incorporated (DGX): A Bull Case Theory

We came across a bullish thesis on Quest Diagnostics Incorporated on Quality Value Investing’s Substack by David J. Waldron. In this article, we will summarize the bulls’ thesis on DGX. Quest Diagnostics Incorporated's share was trading at $185.39 as of October 14th. DGX’s trailing and forward P/E were 21.67 and 17.12 respectively according to Yahoo Finance.

Quest Diagnostics Inc. (DGX) remains a key player in the U.S. diagnostic testing market, forming a duopoly with Labcorp Holdings and commanding a narrow economic moat due to scale advantages that lower testing costs versus hospital labs. The company provides a wide range of diagnostic services through laboratories, patient centers, mobile phlebotomists, and IT solutions, serving both domestic and international clients.

Despite positive revenue growth in the mid-single digits and high-single-digit profit margins, returns on equity and invested capital remain below QVI’s thresholds, though owners’ earnings and free cash flow growth have been solid. Management has demonstrated shareholder-friendly behavior through dividends and stock buybacks, with $1 billion authorized for repurchases since 2023.

Quest’s balance sheet shows mixed strength, with adequate debt-to-equity coverage and a strong current ratio, but long-term debt coverage falls short, leaving enterprise downside risks at an average level. DGX trades near fair value on a blend of price-to-sales, earnings, and free cash flow multiples, with modest forward dividend yields and below-average volatility, while short interest remains low. The stock has underperformed the broader market since its inclusion in QVI Real-Time Stock Picks, reflecting a neutral present value rating.

Potential catalysts for the stock include growth from advanced and gene-based testing, hospital acquisitions, and adoption of residual disease monitoring tests, which could improve margins and returns. Risks include Medicaid cuts, hospital closures, and operational complaints. Overall, Quest Diagnostics represents a stable, moderately undervalued healthcare services business with a neutral current wealth rating, fair present valuation, and limited downside, while awaiting catalysts that could enhance long-term returns.

Previously we covered a bullish thesis on Quest Diagnostics Incorporated (DGX) by Magnus Ofstad in April 2025, highlighting its diagnostic leadership, growth from aging populations, AI-driven efficiency, and strategic acquisitions like LifeLabs. The stock has appreciated ~13% since then, as the thesis largely played out. David J. Waldron shares a similar thesis but emphasizes DGX’s duopoly, narrow moat, and enterprise risks.

Quest Diagnostics Incorporated is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 41 hedge fund portfolios held DGX at the end of the second quarter which was 46 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.