QUEST DIAGNOSTICS INC (DGX): what the price assumes

In the published model solve dated 2026-Q2, anchored at $242.76, QUEST DIAGNOSTICS INC (DGX) is priced for -0.1% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-08-30 · Exported: 2026-08-31 · Source: https://boothcheck.com/report/DGX

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage (computed at the 7% minimum rate; the CAPM rate 7% sits below it).

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

The price is justified by relative-multiple and growth-DCF; asset-based/earnings-power land below the price.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Relative, Growth Families that call it expensive: Asset, Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.2%); the inversion above states its own rate.

Per-Model Detail (n=18)

Economic-Unit Decomposition (Sum Of The Parts)

Only one reportable economic unit is present in the current topology source. Consolidated operating lenses remain available, but there is no multi-unit decomposition.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

• Two customer relationships supplied roughly seven of the 10.8 percentage points of organic test-volume growth in the March 2026 quarter, and the same work pulled revenue per requisition down 1.3%, which is the trade this company is currently making.
• A price near 20 times trailing operating income assumes operating profit goes essentially nowhere for five years, so the burden of proof here sits with the bear rather than the bull.
• Second-quarter results landed on July 23, 2026 with revenue of $3.04 billion and a raised full-year 2026 revenue range of $11.95 billion to $12.05 billion.

Bull Case

Mature is not an insult in clinical diagnostics, and reading Quest as a growth story is the fastest way to misprice it. What sits underneath the ticker is infrastructure: a national courier network moving specimens overnight, a set of regional laboratories with heavy fixed costs, and a billing operation that reconciles claims against dozens of payer rulebooks. The business sells capacity and reliability. So the questions worth asking are narrow ones. Does volume keep running through the fixed base, and does the price per test hold. In the March 2026 quarter requisition volume rose 10.9% and operating income rose to $399 million from $346 million, lifting operating margin to 13.8% from 13.0%. That is the machine doing what it was built to do.

The scale advantage shows up as cost per specimen, and the company manages it as an explicit program: The Invigorate program aims to deliver 3% annual cost savings and productivity improvements, covering patient services, logistics, laboratory operations, revenue services and procurement. Density is the mechanism. A courier route that already passes a physician office absorbs the next specimen for almost nothing, which is why the same test costs a national network less than it costs a hospital running its own laboratory. The 10-K makes the competitive inference without dressing it up: We believe that increased price transparency should benefit lower cost, high value providers like our Company.

Against the only peer of comparable scale, the profit gap is the argument. LH, the other national reference laboratory, earns a 10.2% operating margin on $14.1 billion of trailing revenue, while Quest earns 14.1% on a smaller base. The molecular-diagnostics names that attract more attention are not in the same conversation on profitability: NTRA grew revenue 36.6% with a negative operating margin, and GH grew 39.6% with a deeply negative one. Growth at that pace has to be funded from somewhere. Quest funds itself, and then some.

Capital allocation is unglamorous and consistent with the story. The share count has fallen about 1.9% a year across the last four years, which is buyback deployment appearing where it cannot be faked. Meanwhile the acquisition template is repeatable rather than opportunistic: the Corewell Health venture, completed in January 2026 with the company taking a 51% controlling interest for 38 million dollars of consideration to the health system, buys a hospital system's outreach book, routes those specimens onto the existing network, and keeps the incremental margin. There are several hundred health systems in the United States still running their own outreach laboratories.

The bear's objection is real and it follows immediately below. But notice what it is not. It is not that the price demands heroics. At today's multiple the market has priced operating profit to go essentially flat for five years, and a business adding volume at this rate does not have to be brilliant to clear that bar.

Bear Case

Take two customer relationships out of the March quarter and the growth story changes character entirely. Organic requisition volume rose 10.8%, and the filing is unusually specific about where it came from: approximately 7% was due to both our new relationship with Corewell Health to provide Collaborative Lab Solutions and increasing our laboratory testing at dialysis clinics owned by Fresenius Medical Care in the United States. Strip those out and the number is 3.8%. Underlying demand, in other words, grew at roughly a third of the headline rate, and the headline rate is what gets quoted.

Volume acquired that way arrives at a discount. Revenue per requisition decreased by 1.3% over the same period, and the company attributes the decline to those same relationships, which include a greater proportion of routine tests than most of our clinical testing. Excluding them, revenue per requisition increased by approximately 2.5%. The honest reading is that Quest deliberately traded price for volume, and both reported figures flatter the result. Arrangements structured this way also carry a cliff built into the calendar. Once a signed relationship laps its first year, the comparison resets to the underlying rate, and the underlying rate is 3.8%.

Behind all of it sit the payers, who set the prices in this industry. The annual filing describes their behaviour without euphemism, listing among the risks it faces unilateral reduction of fee schedules payable to us, unilateral recoupment of amounts allegedly owed and competitive bidding, and noting that healthcare market participants including health plans and governments, are focusing on controlling costs. A clinical laboratory does not price its own product. It negotiates with counterparties whose stated purpose is to pay less for the same test next year, and it does so while Billing for diagnostic information services is very complicated, with multiple payers per claim and disparate coverage rules among them.

Now set that against what the price actually requires, because the shape of the risk follows from it. Roughly 20 times operating income, with operating profit assumed flat for five years, is not a demanding bet. That means the downside here is about the level of earnings rather than the slope. The price already sits about twice above where the asset-value methods land and about 1.9 times above where the earnings-power methods land. If reimbursement pressure walks the quarterly operating margin back to where it stood a year earlier instead of holding the 13.8% just reported, there is a long stretch of ground between today's price and the point where those static methods become the floor.

The balance sheet does not soften that. Net debt runs about 3.4 times operating profit against 393 million dollars of liquid assets, which makes it a claim on cash flow rather than a cushion under the equity, and the outreach-acquisition strategy the bull case depends on has to be funded from the same source that services the debt and buys back the stock. Nothing here is fragile. But mature businesses that sell into price-controlled demand tend to earn mature multiples, and the bull case needs a steady supply of hospital systems willing to hand over their laboratory books. The bear case only needs that supply to thin out.

Valuation

Work backwards from $227.80 and the embedded assumption turns out to be modest. The market values the operating business at about 20 times trailing operating income. Invert that over a five-year stage, at a cost of capital of seven percent, and the implied pace of operating-profit growth is roughly -0.2% a year. Essentially flat, with the terminal assumption carrying the rest. This is not a price betting on brilliance. It is a price betting that nothing breaks.

The methods used to triangulate the business split along a clean line. Peer-multiple methods and the forward cash-flow methods both land above today's price. The asset-value methods sit well under it, with the price about twice above where they land, and the earnings-power methods about 1.9 times above. That combination describes a stock the market is treating as a going concern with durable cash flows rather than as a collection of laboratories and receivables, which is the correct treatment right up until the cash flows wobble. The static methods are not wrong so much as they are measuring a business that only makes sense running.

The concrete version of the demand is the margin, and here the two readings of the same quarter matter. Reported operating margin was 13.8% in the March 2026 quarter against 13.0% a year earlier, and on a trailing basis it is 14.1%. Nothing in the price requires that to expand. What the price requires is that it not compress. The complication is that the work currently driving volume growth is lower-priced routine testing, which is why revenue per requisition fell 1.3% in the quarter. Volume that dilutes price per test is a good trade while the fixed base absorbs it, and a different thing entirely once it stops.

The cohort comparison is brief because the cohort is thin. LH is the only peer operating at comparable scale, earning a 10.2% operating margin on $14.1 billion of revenue; the remainder of the group are molecular-diagnostics companies still spending ahead of their revenue. Measured that way, profitability is the distinguishing feature here, and the multiple is what that distinction costs.

Solvency is the part that constrains rather than cushions. Net debt runs about 3.4 times operating profit, or about 4.3 times after-tax operating profit, against 393 million dollars of liquid assets, and the company is not burning cash. The share count has fallen about 1.9% a year over the last four years, so operating cash flow is being split between lenders and shareholders at the same time. That split, rather than the valuation, is the real governor on how fast the acquisition strategy can run.

Catalysts

Second-quarter results arrived on July 23, 2026, with revenue of $3.04 billion against a consensus of $2.97 billion, and management lifted the full-year 2026 revenue range to $11.95 billion to $12.05 billion. The raise is the more interesting half. A mid-year increase in the revenue outlook from a company whose price assumes flat operating profit for five years is a direct argument with the assumption sitting inside that price, and it is the kind of argument that gets settled one quarter at a time.

The following day Bank of America raised its price target on the stock to $265 from $245, citing the quarter. The direction is the readable part rather than the level; sell-side targets tend to follow reported results rather than anticipate them, and what moved here was an estimate that had been set before the print. Watch whether the revision pattern continues into the fiscal fourth quarter, because a single raise after a beat is routine and a sequence of them is not.

On the operating side, the company extended oncology test ordering into the OncoEMR platform used by community oncology practices in early July. That matters less as a revenue event than as a mix event. Oncology work carries higher revenue per requisition than the routine testing currently driving volume growth, so distribution wins in that direction push against the price-per-test dilution running through the reported numbers. It is a small item on its own, and it points squarely at the problem the numbers actually have.

Peer Cohorts (Per Segment, With Filing Citations)

Diagnostic Information Services (DIS) (reported)

• LH (LABCORP HOLDINGS INC.)
• FY2025 10-K: …largest portion of the clinical laboratory market, and Dx supports this demand through an expansive test menu that includes clinical, anatomic pathology, genetic, and genomic tests. In addition, Dx performs testing for a wide range of other customers and purposes, including employment and occupational testing,…
• FY2025 10-K: …to pathology data, and enhanced consistency across diagnostic workflows and clinical trials. • Provider and Payer Digital Platforms : Online applications for providers, MCOs, and ACOs to obtain test results and population and health management data. • CDS Reporting : Analytics-enabled reporting solutions, with nearly…
• NTRA (NATERA, INC.)
• FY2025 10-K: …and state statutes and regulations. The laws and regulations govern, among other things, medical device development, testing, labeling, storage, premarket clearance, de novo classification or premarket approval, post-market requirements, labeling, advertising and promotion and product sales and distribution. Unless…
• FY2025 10-K: …commercialization. As of December 31, 2025, we held over 650 issued or pending U.S. and foreign patents. Our patents and patent applications relate generally to molecular diagnostics, and more specifically to biochemical and analytical techniques for obtaining and analyzing genetic information to detect genetic…
• GH (GUARDANT HEALTH, INC.)
• FY2025 10-K: …of medical devices that have been found to present a safety risk; • set up a central database (Eudamed) to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and • strengthen rules for the assessment of certain high-risk devices that may have to…
• FY2025 10-K: …and/or performance of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. An FSCA may include the recall,…
• RDNT (RadNet, Inc.)
• FY2025 10-K: …is expected to reach 84 million, or 23% of the total population by 2054. Because diagnostic imaging use tends to increase as a person ages, we believe the aging population will generate more demand for diagnostic imaging procedures . Greater Consumer Awareness of and Demand for Preventive Diagnostic Screening.…
• FY2025 10-K: …Service. Our operations comprise two segments for financial reporting purposes for this reporting period, Imaging Centers and Digital Health. For further financial information about these segments, see Note 5, Segment Reporting, in the notes accompanying our consolidated financial statements included in this report.…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.