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Quest Diagnostics Inc Valuation – February 2019 $DGX

Company Profile (excerpt from Reuters): Quest Diagnostics Incorporated, incorporated on September 20, 1996, is a provider of diagnostic information services. The Company operates through two businesses: Diagnostic Information Services and Diagnostic Solutions. The Diagnostic Information Services business develops and delivers diagnostic testing information and services, providing insights that empower and enable a range of customers, including patients, clinicians, hospitals, integrated delivery networks (IDNs), health plans, employers and accountable care organizations (ACOs). Its Diagnostic Solutions group includes its risk assessment services business, which offers solutions for insurers, and its healthcare information technology businesses, which offers solutions for healthcare providers.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DGX – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $11,921,276,764 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.15 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 44.56% Pass
6. Moderate PEmg Ratio PEmg < 20 16.98 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.27 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.15 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 15.86 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.16
MG Growth Estimate 3.88%
MG Value $83.87
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $74.80
MG Value based on 0% Growth $43.85
Market Implied Growth Rate 4.24%
Current Price $87.61
% of Intrinsic Value 104.46%

Quest Diagnostics Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $4.1 in 2014 to an estimated $5.16 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 4.24% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Quest Diagnostics Inc revealed the company was trading above its Graham Number of $68.13. The company pays a dividend of $1.35 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 16.98, which was below the industry average of 51.18, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-28.91.

Quest Diagnostics Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$28.91
Graham Number $68.13
PEmg 16.98
Current Ratio 1.15
PB Ratio 2.27
Current Dividend $1.35
Dividend Yield 1.54%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $1,603,000,000
Total Current Liabilities $1,389,000,000
Long-Term Debt $3,394,000,000
Total Assets $10,986,000,000
Intangible Assets $7,615,000,000
Total Liabilities $5,621,000,000
Shares Outstanding (Diluted Average) 139,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.66
Dec2017 $5.50
Dec2016 $4.51
Dec2015 $4.87
Dec2014 $3.81
Dec2013 $5.54
Dec2012 $3.46
Dec2011 $2.92
Dec2010 $4.05
Dec2009 $3.87
Dec2008 $2.97
Dec2007 $1.74
Dec2006 $2.94
Dec2005 $2.66
Dec2004 $2.35
Dec2003 $2.02
Dec2002 $1.62
Dec2001 $0.83
Dec2000 $0.54
Dec1999 -$0.03
Dec1998 $0.22

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.16
Dec2017 $4.89
Dec2016 $4.53
Dec2015 $4.40
Dec2014 $4.10
Dec2013 $4.15
Dec2012 $3.46
Dec2011 $3.34
Dec2010 $3.40
Dec2009 $3.00
Dec2008 $2.55
Dec2007 $2.34
Dec2006 $2.54
Dec2005 $2.19
Dec2004 $1.79
Dec2003 $1.34
Dec2002 $0.88

Recommended Reading:

Other ModernGraham posts about the company

Quest Diagnostics Inc Valuation – April 2018 $DGX
7 Best Stocks For Value Investors This Week – 7/30/16
Quest Diagnostics Inc Valuation – July 2016 $DGX
18 Best Stocks For Value Investors This Week – 1/30/16
Quest Diagnostics Inc Valuation – January 2016 Update $DGX

Other ModernGraham posts about related companies

Abiomed Inc Valuation – February 2019 $ABMD
Laboratory Corp of America Holdings Inc Valuation – January 2019 $LH
Intuitive Surgical Inc Valuation – January 2019 $ISRG
PerkinElmer Inc Valuation – January 2019 $PKI
Cardinal Health Inc Valuation – January 2019 $CAH
Varian Medical Systems Inc Valuation – January 2019 $VAR
Zimmer Biomet Holdings Inc Valuation – January 2019 $ZBH
Henry Schein Inc Valuation – January 2019 $HSIC
Medtronic PLC Valuation – January 2019 $MDT
UnitedHealth Group Inc Valuation – November 2018 $UNH

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Quest Diagnostics Inc Valuation – April 2018 $DGX

Company Profile (excerpt from Reuters): Quest Diagnostics Incorporated, incorporated on September 20, 1996, is a provider of diagnostic information services. The Company operates through two businesses: Diagnostic Information Services and Diagnostic Solutions. The Diagnostic Information Services business develops and delivers diagnostic testing information and services, providing insights that empower and enable a range of customers, including patients, clinicians, hospitals, integrated delivery networks (IDNs), health plans, employers and accountable care organizations (ACOs). Its Diagnostic Solutions group includes its risk assessment services business, which offers solutions for insurers, and its healthcare information technology businesses, which offers solutions for healthcare providers.

DGX Chart

DGX data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DGX – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $13,487,536,990 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.24 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 52.77% Pass
6. Moderate PEmg Ratio PEmg < 20 18.30 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.84 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.24 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 15.05 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.46
MG Growth Estimate 4.97%
MG Value $100.54
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $79.10
MG Value based on 0% Growth $46.37
Market Implied Growth Rate 4.90%
Current Price $99.83
% of Intrinsic Value 99.29%

Quest Diagnostics Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $4.1 in 2014 to an estimated $5.46 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 4.9% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Quest Diagnostics Inc revealed the company was trading above its Graham Number of $73.29. The company pays a dividend of $1.35 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 18.3, which was below the industry average of 44.81, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-30.54.

Quest Diagnostics Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$30.54
Graham Number $73.29
PEmg 18.30
Current Ratio 1.24
PB Ratio 2.84
Current Dividend $1.35
Dividend Yield 1.35%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $1,306,000,000
Total Current Liabilities $1,057,000,000
Long-Term Debt $3,748,000,000
Total Assets $10,503,000,000
Intangible Assets $7,454,000,000
Total Liabilities $5,582,000,000
Shares Outstanding (Diluted Average) 140,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.55
Dec2017 $5.50
Dec2016 $4.51
Dec2015 $4.87
Dec2014 $3.81
Dec2013 $5.54
Dec2012 $3.46
Dec2011 $2.92
Dec2010 $4.05
Dec2009 $3.87
Dec2008 $2.97
Dec2007 $1.74
Dec2006 $2.94
Dec2005 $2.66
Dec2004 $2.35
Dec2003 $2.02
Dec2002 $1.62
Dec2001 $0.83
Dec2000 $0.54
Dec1999 -$0.03
Dec1998 $0.22

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.46
Dec2017 $4.89
Dec2016 $4.53
Dec2015 $4.40
Dec2014 $4.10
Dec2013 $4.15
Dec2012 $3.46
Dec2011 $3.34
Dec2010 $3.40
Dec2009 $3.00
Dec2008 $2.55
Dec2007 $2.34
Dec2006 $2.54
Dec2005 $2.19
Dec2004 $1.79
Dec2003 $1.34
Dec2002 $0.88

Recommended Reading:

Other ModernGraham posts about the company

18 Best Stocks For Value Investors This Week – 1/30/16
Quest Diagnostics Inc Valuation – January 2016 Update $DGX
8 Best Stocks For Value Investors This Week – 10/13/15
Quest Diagnostics Inc. Analysis – October 2015 Update $DGX
The Best Companies of the Medical Industry – September 2015

Other ModernGraham posts about related companies

Laboratory Corporation of America Holdings Valuation – March 2018 $LH
Intuitive Surgical Inc valuation – March 2018 $ISRG
PerkinElmer Inc Valuation – March 2018 $PKI
Cardinal Health Inc Valuation – March 2018 $CAH
Varian Medical Systems Inc Valuation – March 2018 $VAR
Zimmer Biomet Holdings Inc Valuation – March 2018 $ZBH
Henry Schein Inc Valuation – March 2018 $HSIC
Medtronic PLC Valuation – March 2018 $MDT
UnitedHealth Group Inc Valuation – February 2018 $UNH
VCA Inc Valuation – Initial Coverage $WOOF

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Quest Diagnostics Inc Valuation – July 2016 $DGX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Quest Diagnostics Inc (DGX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Quest Diagnostics Incorporated is a provider of diagnostic information services. The Company operates through two businesses: Diagnostic Information Services and Diagnostic Solutions. The Company’s Diagnostic Information Services business develops and delivers diagnostic testing information and services to patients, physicians, health plans, hospitals, accountable care organizations (ACOs), integrated delivery networks (IDNs), other commercial laboratories, employers and others. The Company’s Diagnostic Solutions offers a range of solutions for insurers and healthcare providers. The Company provides risk assessment services for the life insurance industry. In addition, the Company offers healthcare organizations and clinicians’ health information technology solutions and diagnostic products. ExamOne provides risk assessment services to the life insurance industry in North America. ChartMaxx is the Company’s enterprise content management system for hospitals.

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of DGX – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $11,774,346,808 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.36 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 60.26% Pass
6. Moderate PEmg Ratio PEmg < 20 18.07 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.67 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.36 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 9.61 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

DGX value chart July 2016

EPSmg $4.72
MG Growth Estimate 5.49%
MG Value $91.91
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $68.44
MG Value based on 0% Growth $40.12
Market Implied Growth Rate 4.79%
Current Price $85.31
% of Intrinsic Value 92.82%

Quest Diagnostics Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.46 in 2012 to an estimated $4.72 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 4.79% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Quest Diagnostics Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

DGX charts July 2016

Net Current Asset Value (NCAV) -$28.61
Graham Number $60.49
PEmg 18.07
Current Ratio 1.36
PB Ratio 2.67
Current Dividend $1.56
Dividend Yield 1.83%
Number of Consecutive Years of Dividend Growth 2

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $1,510,000,000
Total Current Liabilities $1,111,000,000
Long-Term Debt $3,835,000,000
Total Assets $10,109,000,000
Intangible Assets $6,986,000,000
Total Liabilities $5,572,000,000
Shares Outstanding (Diluted Average) 142,000,000

Earnings Per Share History

Next Fiscal Year Estimate $5.07
Dec2015 $4.87
Dec2014 $3.81
Dec2013 $5.54
Dec2012 $3.46
Dec2011 $2.92
Dec2010 $4.05
Dec2009 $3.87
Dec2008 $2.97
Dec2007 $1.74
Dec2006 $2.94
Dec2005 $2.66
Dec2004 $2.35
Dec2003 $2.06
Dec2002 $1.62
Dec2001 $0.83
Dec2000 $0.54
Dec1999 -$0.03
Dec1998 $0.22
Dec1997 -$0.19

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.72
Dec2015 $4.40
Dec2014 $4.10
Dec2013 $4.15
Dec2012 $3.46
Dec2011 $3.34
Dec2010 $3.40
Dec2009 $3.00
Dec2008 $2.55
Dec2007 $2.35
Dec2006 $2.54
Dec2005 $2.19
Dec2004 $1.80
Dec2003 $1.35
Dec2002 $0.88
Dec2001 $0.43
Dec2000 $0.19

Recommended Reading:

Other ModernGraham posts about the company

18 Best Stocks For Value Investors This Week – 1/30/16
Quest Diagnostics Inc Valuation – January 2016 Update $DGX
8 Best Stocks For Value Investors This Week – 10/13/15
Quest Diagnostics Inc. Analysis – October 2015 Update $DGX
The Best Companies of the Medical Industry – September 2015

Other ModernGraham posts about related companies

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Laboratory Corp of America Holdings Valuation – July 2016 $LH
Medtronic PLC Valuation – July 2016 $MDT
Intuitive Surgical Inc Valuation – July 2016 $ISRG
Cardinal Health Inc Valuation – July 2016 $CAH
PerkinElmer Inc Valuation – July 2016 $PKI
Varian Medical Systems Inc Valuation – July 2016 $VAR
St. Jude Medical Inc Valuation – June 2016 $STJ
Zimmer Biomet Holdings Inc Valuation – June 2016 $ZBH
Waters Corporation Valuation – May 2016 $WAT

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Quest Diagnostics Inc Valuation – January 2016 Update $DGX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Quest Diagnostics Inc (DGX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Quest Diagnostics Incorporated is a provider of diagnostic testing information services. The Company consists of two businesses: Diagnostic Information Services and Diagnostic Solutions. Diagnostic Information Services business, consists of two parts, develops and delivers diagnostic testing, information and services to patients, physicians, health plans, hospitals, accountable care organizations (ACOs), integrated delivery networks (IDNs), other commercial laboratories, patients and other customers. Diagnostics Information Services business also provides diagnostic information services, which includes providing clinical testing services, such as routine testing, gene-based and esoteric testing, anatomic pathology services and drugs-of-abuse testing. Diagnostic Solutions includes the Company’s other businesses, including central laboratory testing for pharmaceutical and medical device clinical trials, risk assessment services, diagnostic products and healthcare information technology.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of DGX

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,399,440,029 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.45 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 84.18% Pass
6. Moderate PEmg Ratio PEmg < 20 15.19 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.09 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.45 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.93 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

DGX value chart January 2016

EPSmg $4.36
MG Growth Estimate 4.58%
MG Value $77.04
Opinion Fairly Valued
MG Value based on 3% Growth $63.22
MG Value based on 0% Growth $37.06
Market Implied Growth Rate 3.35%
Current Price $66.23
% of Intrinsic Value 85.97%

 

Quest Diagnostics Inc qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The Defensive Investor’s only concern is the low current ratio while the Enterprising Investor is willing to overlook concerns regarding the level of debt relative to the current assets because the company meets the more stringent Defensive Investor requirements.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.34 in 2011 to an estimated $4.36 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 3.35% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within the margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Quest Diagnostics Inc (DGX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

DGX charts January 2016

Net Current Asset Value (NCAV) -$26.46
Graham Number $58.30
PEmg 15.19
Current Ratio 1.45
PB Ratio 2.09
Dividend Yield 2.22%
Number of Consecutive Years of Dividend Growth 1

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $1,648,000,000
Total Current Liabilities $1,133,000,000
Long-Term Debt $3,571,000,000
Total Assets $10,074,000,000
Intangible Assets $6,899,000,000
Total Liabilities $5,485,000,000
Shares Outstanding (Diluted Average) 145,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.74
Dec2014 $3.81
Dec2013 $5.54
Dec2012 $3.46
Dec2011 $2.92
Dec2010 $4.05
Dec2009 $3.87
Dec2008 $2.97
Dec2007 $1.74
Dec2006 $2.94
Dec2005 $2.66
Dec2004 $2.35
Dec2003 $2.02
Dec2002 $1.62
Dec2001 $0.83
Dec2000 $0.54
Dec1999 -$0.03
Dec1998 $0.22
Dec1997 -$0.19

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.36
Dec2014 $4.10
Dec2013 $4.15
Dec2012 $3.46
Dec2011 $3.34
Dec2010 $3.40
Dec2009 $3.00
Dec2008 $2.55
Dec2007 $2.34
Dec2006 $2.54
Dec2005 $2.19
Dec2004 $1.79
Dec2003 $1.34
Dec2002 $0.88
Dec2001 $0.43
Dec2000 $0.19
Dec1999 $0.01

Recommended Reading:

Other ModernGraham posts about the company

8 Best Stocks For Value Investors This Week – 10/13/15
Quest Diagnostics Inc. Analysis – October 2015 Update $DGX
The Best Companies of the Medical Industry – September 2015
The 9 Best Stocks For Value Investors This Week – 7/18/15
Quest Diagnostics Inc. Analysis – July 2015 Update $DGX

Other ModernGraham posts about related companies

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Varian Medical Systems Inc. Valuation – November 2015 Update $VAR
Psychemedics Corporation Valuation – November 2015 Update $PMD
C.R. Bard Inc. Valuation – November 2015 Update $BCR
Henry Schein Inc. Valuation – October 2015 Update $HSIC
Medtronic PLC Valuation – October 2015 Update $MDT
PerkinElmer Inc. Analysis – October 2015 Update $PKI

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Quest Diagnostics Inc. Analysis – October 2015 Update $DGX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – September 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Quest Diagnostics Inc. (DGX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Quest Diagnostics Incorporated is a provider of diagnostic testing information services. The Company consists of two businesses: Diagnostic Information Services and Diagnostic Solutions. Diagnostic Information Services business, consists of two parts, develops and delivers diagnostic testing, information and services to patients, physicians, health plans, hospitals, accountable care organizations (ACOs), integrated delivery networks (IDNs), other commercial laboratories, patients and other customers. Diagnostics Information Services business also provides diagnostic information services, which includes providing clinical testing services, such as routine testing, gene-based and esoteric testing, anatomic pathology services and drugs-of-abuse testing. Diagnostic Solutions includes the Company’s other businesses, including central laboratory testing for pharmaceutical and medical device clinical trials, risk assessment services, diagnostic products and healthcare information technology.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of DGX

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $8,867,267,887 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.23 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 69.15% Pass
6. Moderate PEmg Ratio PEmg < 20 15.53 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.08 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.23 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 12.39 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

DGX value chart October 2015

EPSmg $3.98
MG Growth Estimate 2.86%
MG Value $56.57
Opinion Fairly Valued
MG Value based on 3% Growth $57.66
MG Value based on 0% Growth $33.80
Market Implied Growth Rate 3.50%
Current Price $61.67
% of Intrinsic Value 109.01%

Quest Diagnostics Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the low current ratio.  The Enterprising Investor is satisfied because the company passes the more stringent Defensive Investor requirements.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.34 in 2011 to an estimated $3.98 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 3.5% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Quest Diagnostics Inc. (DGX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

DGX charts October 2015

Net Current Asset Value (NCAV) -$26.73
Graham Number $49.19
PEmg 15.51
Current Ratio 1.23
PB Ratio 2.07
Dividend Yield 2.30%
Number of Consecutive Years of Dividend Growth 1

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $1,530,000,000
Total Current Liabilities $1,242,000,000
Long-Term Debt $3,568,000,000
Total Assets $9,720,000,000
Intangible Assets $7,009,000,000
Total Liabilities $5,406,000,000
Shares Outstanding (Diluted Average) 145,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.59
Dec14 $3.81
Dec13 $5.54
Dec12 $3.46
Dec11 $2.92
Dec10 $4.05
Dec09 $3.87
Dec08 $2.97
Dec07 $1.74
Dec06 $2.94
Dec05 $2.66
Dec04 $2.35
Dec03 $2.02
Dec02 $1.62
Dec01 $0.83
Dec00 $0.54
Dec99 -$0.03
Dec98 $0.22
Dec97 -$0.19

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.98
Dec14 $4.10
Dec13 $4.15
Dec12 $3.46
Dec11 $3.34
Dec10 $3.40
Dec09 $3.00
Dec08 $2.55
Dec07 $2.34
Dec06 $2.54
Dec05 $2.19
Dec04 $1.79
Dec03 $1.34
Dec02 $0.88
Dec01 $0.43
Dec00 $0.19
Dec99 $0.01

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Medical Industry – September 2015
The 9 Best Stocks For Value Investors This Week – 7/18/15
Quest Diagnostics Inc. Analysis – July 2015 Update $DGX
Quest Diagnostics Inc. Quarterly Valuation – April 2015 $DGX
58 Companies in the Spotlight This Week – 1/31/15

Other ModernGraham posts about related companies

Stryker Corporation Analysis – October 2015 Update $SYK
The Best Companies of the Medical Industry – September 2015
Zimmer Biomet Holdings Inc. Analysis – September 2015 Update $ZBH
Waters Corporation Analysis – September 2015 Update $WAT
Patterson Companies Inc. Analysis – September 2015 Update $PDCO
Edwards Lifesciences Corporation Analysis – September 2015 Update $EW
Baxter International Inc. Analysis – September 2015 Update $BAX
Cerner Corporation Analysis – September 2015 Update $CERN
Boston Scientific Inc. Analysis – September 2015 Update $BSX
Intuitive Surgical Inc. Analysis – September 2015 Update $ISRG

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Quest Diagnostics Inc. Analysis – July 2015 Update $DGX

200px-Quest_Diagnostics.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – June 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Quest Diagnostics Inc. (DGX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Quest Diagnostics Incorporated is a provider of diagnostic testing information services. The Company consists of two businesses: Diagnostic Information Services and Diagnostic Solutions. Diagnostic Information Services business, consists of two parts, develops and delivers diagnostic testing, information and services to patients, physicians, health plans, hospitals, accountable care organizations (ACOs), integrated delivery networks (IDNs), other commercial laboratories, patients and other customers. Diagnostics Information Services business also provides diagnostic information services, which includes providing clinical testing services, such as routine testing, gene-based and esoteric testing, anatomic pathology services and drugs-of-abuse testing. Diagnostic Solutions includes the Company’s other businesses, including central laboratory testing for pharmaceutical and medical device clinical trials, risk assessment services, diagnostic products and healthcare information technology.

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Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years - PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $73.87
MG Value $68.90
MG Opinion Fairly Valued
Value Based on 3% Growth $61.09
Value Based on 0% Growth $35.81
Market Implied Growth Rate 4.52%
Net Current Asset Value (NCAV) -$27.36
PEmg 17.53
Current Ratio 1.14
PB Ratio 2.54

Balance Sheet – March 2015

Current Assets $2,375,000,000
Current Liabilities $2,089,000,000
Total Debt $3,688,000,000
Total Assets $10,613,000,000
Intangible Assets $7,027,000,000
Total Liabilities $6,370,000,000
Outstanding Shares 146,000,000

Earnings Per Share

2015 (estimate) $4.30
2014 $3.81
2013 $5.54
2012 $3.46
2011 $2.92
2010 $4.05
2009 $3.87
2008 $2.97
2007 $1.74
2006 $2.94
2005 $2.66

Earnings Per Share – ModernGraham

2015 (estimate) $4.21
2014 $4.10
2013 $4.15
2012 $3.46
2011 $3.34
2010 $3.40

Dividend History

Conclusion:

Quest Diagnostics qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the low current ratio.  The Enterprising Investor has concerns with the level of debt relative to the current assets, but is willing to overlook those issues since the company meets the more conservative Defensive Investor’s requirements.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.34 in 2011 to an estimated $4.21 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 4.52% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Quest Diagnostics Inc. (DGX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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Quest Diagnostics Inc. Quarterly Valuation – April 2015 $DGX

200px-Quest_Diagnostics.svgQuest Diagnostics Inc. (NYSE:DGX) may attract some investors, due to the company’s history of dividend growth. Benjamin Graham, the father of value investing, taught that looking at the price cannot be the sole factor in investment decisions, as the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here is a look at how the company fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham, and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation, in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using theModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

DGX Chart

DGX data by YCharts

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Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – FAIL
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – Has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) Ratio – PEmg is less than 20 – PASS
  7. Moderate Price-to-Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings Growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $76.15
MG Value $59.93
MG Opinion Overvalued
Value Based on 3% Growth $59.43
Value Based on 0% Growth $34.84
Market Implied Growth Rate 5.04%
Net Current Asset Value (NCAV) -$26.84
PEmg 18.58
Current Ratio 0.94
PB Ratio 2.62

Balance Sheet – December 2014

Current Assets $1,603,000,000
Current Liabilities $1,709,000,000
Total Debt $3,244,000,000
Total Assets $9,877,000,000
Intangible Assets $7,103,000,000
Total Liabilities $5,576,000,000
Outstanding Shares 148,000,000

Earnings Per Share

2014 $3.81
2013 $5.54
2012 $3.46
2011 $2.92
2010 $4.05
2009 $3.87
2008 $2.97
2007 $1.74
2006 $2.94
2005 $2.66
2004 $2.35

Earnings Per Share – ModernGraham

2014 $4.10
2013 $4.15
2012 $3.46
2011 $3.34
2010 $3.40
2009 $3.00

Dividend History

DGX Dividend Chart

DGX Dividend data by YCharts

Conclusion

Quest Diagnostics Inc. passes the initial requirements of both the Defensive Investor and the Enterprising Investor. Both investor types are only initially concerned with the low current ratio. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $3.40 in 2010 to $4.10 for 2014. This is a strong level of demonstrated growth, but it does not support the market’s implied estimate for earnings growth of 5.04% annually over the next 7-10 years. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, and returns an estimate of intrinsic value falling below the current price, indicating the company is overvalued at the present time.

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Quest Diagnostics Inc. Quarterly Valuation – January 2015 $DGX

200px-Quest_Diagnostics.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Quest Diagnostics Inc. (DGX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Quest Diagnostics Incorporated (Quest Diagnostics) is a provider of diagnostic testing, information and services, providing insights that enable patients and physicians to make healthcare decisions. Quest Diagnostics offers United States patients and physicians the access to diagnostic testing services through its nationwide network of laboratories and Company-owned patient service centers. The Company provides interpretive consultation through the medical and scientific staff. The Company is a provider of clinical testing, including gene-based and esoteric testing and anatomic pathology services, and the provider of risk assessment services for the life insurance industry. The Company also is a provider of testing for clinical trials and testing for drugs of abuse. In April 2014, the Company announced the acquisition of Summit Health. Combined business will be referred to as Quest Diagnostics Health and Wellness Services.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $71.55
MG Value $63.87
MG Opinion Overvalued
Value Based on 3% Growth $60.54
Value Based on 0% Growth $35.49
Market Implied Growth Rate 4.32%
Net Current Asset Value (NCAV) -$27.97
PEmg 17.14
Current Ratio 1.31
PB Ratio 2.48

Balance Sheet – September 2014

Current Assets $1,563,000,000
Current Liabilities $1,190,000,000
Total Debt $3,732,000,000
Total Assets $9,801,000,000
Intangible Assets $7,121,000,000
Total Liabilities $5,619,000,000
Outstanding Shares 145,000,000

Earnings Per Share

2014 (estimate) $4.04
2013 $5.54
2012 $3.46
2011 $2.92
2010 $4.05
2009 $3.87
2008 $2.97
2007 $1.74
2006 $2.94
2005 $2.66
2004 $2.35

Earnings Per Share – ModernGraham

2014 (estimate) $4.18
2013 $4.15
2012 $3.46
2011 $3.34
2010 $3.40
2009 $3.00

Dividend History

Conclusion:

Quest Diagnostics Inc. is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is only concerned by the low current ratio.  The Enterprising Investor is concerned by the level of debt relative to the current assets but overlooks those concerns since the company qualifies for the more conservative Defensive Investor.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.40 in 2010 to an estimated $4.18 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 4.32% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Quest Diagnostics Inc. (DGX) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Quest Diagnostics Inc. (DGX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Quest Diagnostics Inc. (DGX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Quest Diagnostics Inc. Quarterly Valuation – October 2014 $DGX

200px-Quest_Diagnostics.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies to Research for the Defensive Investor - October 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Quest Diagnostics Inc. (DGX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Quest Diagnostics Incorporated (Quest Diagnostics) is a provider of diagnostic testing, information and services, providing insights that enable patients and physicians to make healthcare decisions. Quest Diagnostics offers United States patients and physicians the access to diagnostic testing services through its nationwide network of laboratories and Company-owned patient service centers. The Company provides interpretive consultation through the medical and scientific staff. The Company is a provider of clinical testing, including gene-based and esoteric testing and anatomic pathology services, and the provider of risk assessment services for the life insurance industry. The Company also is a provider of testing for clinical trials and testing for drugs of abuse. In April 2014, the Company announced the acquisition of Summit Health. Combined business will be referred to as Quest Diagnostics Health and Wellness Services.
DGX Chart

DGX data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 -FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $63.36
MG Value $62.32
MG Opinion Fairly Valued
Value Based on 3% Growth $60.11
Value Based on 0% Growth $35.24
Market Implied Growth Rate 3.39%
Net Current Asset Value (NCAV) -$28.69
PEmg 15.28
Current Ratio 1.20
PB Ratio 2.25

Balance Sheet – June 2014

Current Assets $1,505,000,000
Current Liabilities $1,258,000,000
Total Debt $3,738,000,000
Total Assets $9,757,000,000
Intangible Assets $7,141,000,000
Total Liabilities $5,665,000,000
Outstanding Shares 145,000,000

Earnings Per Share

2014 (estimate) $3.95
2013 $5.54
2012 $3.46
2011 $2.92
2010 $4.05
2009 $3.87
2008 $2.97
2007 $1.74
2006 $2.94
2005 $2.66
2004 $2.35

Earnings Per Share – ModernGraham

2014 (estimate) $4.15
2013 $4.15
2012 $3.46
2011 $3.34
2010 $3.40
2009 $3.00

Dividend History
DGX Dividend Chart

DGX Dividend data by YCharts

Conclusion:

Quest Diagnostics is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is the low current ratio, and the Enterprising Investor is willing to overlook concerns regarding the debt level relative to the current assets because the company qualifies for the more conservative Defensive Investor.  As a result, value investors  following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.40 in 2010 to an estimated $4.15 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 3.39% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

Be sure to check out previous ModernGraham valuations of Quest Diagnostics (DGX) for a better perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Quest Diagnostics (DGX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Quest Diagnostics (DGX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Quest Diagnostics Inc. Quarterly Valuation – July 2014 $DGX

200px-Quest_Diagnostics.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies to Research for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Quest Diagnostics (DGX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Quest Diagnostics Incorporated (Quest Diagnostics) is a provider of diagnostic testing, information and services, providing insights that enable patients and physicians to make healthcare decisions. Quest Diagnostics offers United States patients and physicians the access to diagnostic testing services through its nationwide network of laboratories and Company-owned patient service centers. The Company provides interpretive consultation through the medical and scientific staff. The Company is a provider of clinical testing, including gene-based and esoteric testing and anatomic pathology services, and the provider of risk assessment services for the life insurance industry. The Company also is a provider of testing for clinical trials and testing for drugs of abuse. In April 2014, the Company announced the acquisition of Summit Health. Combined business will be referred to as Quest Diagnostics Health and Wellness Services.
DGX Chart

DGX data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $61.52
MG Value $54.59
MG Opinion Overvalued
Value Based on 3% Growth $60.53
Value Based on 0% Growth $35.48
Market Implied Growth Rate 3.12%
Net Current Asset Value (NCAV) -$28.26
PEmg 14.74
Current Ratio 1.25
PB Ratio 2.22

Balance Sheet – 3/31/2014

Current Assets $1,488,000,000
Current Liabilities $1,192,000,000
Total Debt $3,724,000,000
Total Assets $9,550,000,000
Intangible Assets $6,998,000,000
Total Liabilities $5,558,000,000
Outstanding Shares 144,000,000

Earnings Per Share

2014 (estimate) $3.94
2013 $5.31
2012 $3.92
2011 $2.93
2010 $4.06
2009 $3.88
2008 $3.23
2007 $2.84
2006 $3.14
2005 $2.66
2004 $2.33

Earnings Per Share – ModernGraham

2014 (estimate) $4.17
2013 $4.20
2012 $3.63
2011 $3.46
2010 $3.62
2009 $3.32

Dividend History
DGX Dividend Chart

DGX Dividend data by YCharts

Conclusion:

Quest Diagnostics is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only concern is with the poor current ratio, and since the company qualifies for Defensive Investors, it also qualifies for Enterprising Investors by default.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Psychemedics Corp (PMD).  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.62 in 2010 to only an estimated $4.17 for 2014. This low level of demonstrated growth does not support the market’s implied estimate of 3.12% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out the previous ModernGraham valuations of Quest Diagnostics (DGX) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Quest Diagnostics (DGX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Quest Diagnostics (DGX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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