Quest Diagnostics is Thursday's IBD Stock Of The Day. Shares are lingering in a buy zone, helped by a Texas court's ruling that impacts $10 million in planned investments.
This week, the U.S. District Court of the Eastern District of Texas ruled that laboratory-developed tests will not be subject to the same compliance measures required of in-vitro diagnostic products. The decision reverses a May 2024 rule put into place by the Food and Drug Administration.
Secaucus, N.J.-based Quest had planned to invest $10 million to bring their laboratory developed tests under the new compliance rule, which was set to go into place on May 6. This would have represented a roughly 7-cent headwind to adjusted earnings per share, J.P. Morgan analysts wrote in a recent note to clients.
"We see this as a positive development for the clinical laboratory space overall," the analysts said.
Quest Diagnostics Stock Sidesteps Sell-Off
Quest Diagnostics stock is holding up relatively well despite a broad stock market sell-off after President Donald Trump announced a far-reaching 10% tariff on all imports and country-specific "reciprocal tariffs."
Quest stock rose 1.6% to close at 170.63, while Investor's Business Daily's Medical-Services industry group collectively lost roughly 2%. Shares are in a buy zone after breaking out of cup base with a buy point at 165.32 on Jan. 30. But investors should be cautious about buying any stocks. All buys are risky in the current market.
The Texas court's decision is a small financial boon for Quest Diagnostics, but there are other challenges in the near term.
At its investor day in March, Quest Diagnostics outlined a potential $100 million impact to its business as the U.S. implements the Protecting Access to Medicare Act, or PAMA. That's up $10 million from the company's previous guidance.
PAMA was signed into law in 2014. The measure determined that Medicare payments for laboratory tests were often higher than for commercial payers. It's implementation has been delayed five times, according to consulting firm Applied Policy. But when PAMA does go into effect, it will cut Medicare payments by up to 15% for 800 lab services.
The U.S. government is now expected to implement PAMA in 2026. This translates to a 2-cent hit to adjusted earnings for the fiscal year, bringing forecasts down to $17.60 per share, J.P. Morgan analysts said in a late March report. Still, they kept their 291 price target on Quest stock.
Shares Are Highly Rated
Despite the risky market conditions, Quest Diagnostics stock has managed to carve out an 11% gain for the year. Shares bounced off their 50-day moving average on Thursday, MarketSurge shows.
Shares also have a Relative Strength Rating of 88 out of a best-possible 99. This means Quest stock has outperformed 88% of all stocks over the past 12 months. The RS Rating has improved markedly from 27 a year ago, according to IBD Digital.
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