Healthcare diagnostics company Quest Diagnostics (NYSE: DGX) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 12.1% year on year to $2.65 billion. The company expects the full year’s revenue to be around $10.78 billion, close to analysts’ estimates. Its non-GAAP profit of $2.21 per share was 2.8% above analysts’ consensus estimates.

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"In the first quarter, we delivered strong revenue growth of approximately 12%, including nearly 2.5% in organic growth, as demand rebounded in March following weather impacts early in the quarter. Our growth was due to contributions from acquisitions and large enterprise accounts, demand for our advanced diagnostics portfolio, and expanded health plan access," said Jim Davis, Chairman, CEO and President.

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.

Testing & Diagnostics Services

The testing and diagnostics services industry plays a crucial role in disease detection, monitoring, and prevention, serving hospitals, clinics, and individual consumers. This sector benefits from stable demand, driven by an aging population, increased prevalence of chronic diseases, and growing awareness of preventive healthcare. Recurring revenue streams come from routine screenings, lab tests, and diagnostic imaging, with reimbursement from Medicare, Medicaid, private insurance, and out-of-pocket payments. However, the industry faces challenges such as pricing pressures, regulatory compliance, and the need for continuous investment in new testing technologies. Looking ahead, industry tailwinds include the expansion of personalized medicine, increased adoption of at-home and rapid diagnostic tests, and advancements in AI-driven diagnostics that enhance accuracy and efficiency. However, headwinds such as reimbursement uncertainties, competition from decentralized testing solutions, and regulatory scrutiny over test validity and cost-effectiveness may impact profitability. Adapting to evolving healthcare models and integrating automation will be key for sustaining growth and maintaining operational efficiency.

Sales Growth

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Quest’s 5.8% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the healthcare sector and is a rough starting point 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 2.8% over the last two years was below its five-year trend.

Quest also reports its number of requisition volumes. Over the last two years, Quest’s requisition volumes averaged 4.5% year-on-year growth. Because this number is better than its revenue growth, we can see the company’s average selling price decreased.

This quarter, Quest reported year-on-year revenue growth of 12.1%, and its $2.65 billion of revenue exceeded Wall Street’s estimates by 1.3%.

Looking ahead, sell-side analysts expect revenue to grow 6.9% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and suggests its newer products and services will spur better top-line performance.

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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%.

Looking at the trend in its profitability, Quest’s operating margin decreased by 10.1 percentage points over the last five years. A silver lining is that on a two-year basis, its margin has stabilized. Still, shareholders will want to see Quest become more profitable in the future.

This quarter, Quest generated an operating profit margin of 13%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

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 solid 8.2% compounded annual growth rate over the last five years, higher than its 5.8% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

Diving into the nuances of Quest’s 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 16.3%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q1, Quest reported EPS at $2.21, up from $2.04 in the same quarter last year. This print beat analysts’ estimates by 2.8%. Over the next 12 months, Wall Street expects Quest’s full-year EPS of $9.10 to grow 8.4%.

Key Takeaways from Quest’s Q1 Results

It was good to see Quest narrowly top analysts’ revenue expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. The company reaffirmed previously-provided full-year guidance. Perhaps the lack of a guidance raise despite a beat is cause for the stock move. Specifically, the stock traded down 3.7% to $156.01 immediately following the results.

So do we think Quest is an attractive buy at the current price? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.