Quest Diagnostics Brings Lift to This Holding

In our opening comments on Tuesday morning, we alluded to how, in order for a company’s stock price to push higher in the current market, it will need to deliver not a “beat and reiterate” quarter but a “beat and raise” one. We saw that on Tuesday morning from Quest Diagnostics DGX and that is propelling our shares of Labcorp LH higher ahead of the company’s June quarter results on Thursday, July 24.

In Monday's video, we discussed how there are a few holdings that fall in the camp of not dominating headlines and how they are influenced by comments from competitors, suppliers and customers. Labcorp is one of those stocks, which after drifting lower of late, the shares are rebounding on Tuesday morning.

Quest’s June Quarter and Guidance

Quest delivered June quarter EPS of $2.62 per share, $0.05 ahead of the market consensus, on revenue that climbed more than 15% year over year to $2.76 billion, edging out the $2.73 billion consensus. While the company’s earnings press release was rather bare bones, two things jumped out: even stronger revenue growth for its Diagnostic Information Services revenue and even faster operating profit growth. Even so, we see two similarities between Quest and Labcorp — top-line growth being fueled by a combination of organic revenue growth and the incremental benefit of acquisitions, and the rising testing outsourcing by hospitals and other entities. Quest also shared that its advanced diagnostics are helping drive the overall revenue stream, and we see Labcorp benefitting from that as well.

When pressed about the impact of the "big, beautiful bill," Quest pointed out that there is no impact in 2026 and very little in 2027, which suggests the impact on Medicaid enrollment is more back-ended than not. We see that clarity is giving some additional lift to DGX as well as LH shares on Tuesday morning.

Quest Sees Tariffs as Manageable

In terms of tariffs, Quest management acknowledged that there was some pressure in the June quarter, but that it had baked that into its guidance. It’s done the same with its current outlook that calls for EPS of $9.63 to $9.83, up from $9.55 to $9.80 and the $9.70 consensus.

Quest management must have been reading our opening comments to you about the August 1 trade deal deadline and ensuing tariffs because they addressed it head-on during the earnings call:

"I know there's a lot of uncertainty around what's going to happen August 1, or I mean, there's always a lot of scenarios around that. We have contracts in place with almost 80% of our spend on the supply side … we believe that even with an August 1 scenario where tariffs do go up on certain products that we that we can offset that impact through the contracts have in place and through the alternate sourcing supply channels that we have looking at different vendors where we can resource some of the supplies from U.S. manufacturers or at least U.S.-based manufacturing, not China-based manufacturing."

Prepping for Labcorp Earnings

When Labcorp issued its guidance on April 29, it made similar comments, and we would be surprised if it did not reiterate them on Thursday. That said, one other item that called out to us during the Quest earnings call was the company’s investment in automation. A likely positive for Rockwell Automation ROK, and if we hear similar comments from Labcorp, it would give us reason to revisit their place in the Bullpen. ROK shares have exploded higher along with many others of late, and at the right price, they could be a nice play on U.S. re-shoring as well as a larger productivity and automation play for the Portfolio.

Getting back to Labcorp, the company is expected to deliver EPS of $4.17 on $3.49 billion in revenue for its June quarter, and guide EPS to $4.06 on revenue of $3.52 billion for the current one. As we dig into the results and revised guidance, we intend to revisit our $265 price target as needed, but barring upside to more than $285, odds are we’d keep our Two rating intact.

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At the time of publication, TheStreet Pro Portfolio was long LH.