QUEST DIAGNOSTICS INC (DGX): what the price requires
At today's price, QUEST DIAGNOSTICS INC (DGX) is priced for -2.0% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/DGX
Headline
| Field | Value |
|---|---|
| Ticker | DGX |
| Company | QUEST DIAGNOSTICS INC |
| Current price | $208.16/sh |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 6.1% |
| Operating margin today | 14.1% |
| Margin compression implied | -8.0pp |
| Implied growth | -2.0% |
| Multiple paid | 18x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.6pp (computed at the 7% minimum rate; the CAPM rate 6.9% sits below it).
Reconcile: at the x-ray's 9.3% required return this reads ~13.9%/yr; the models below use their own rates.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -0.31σ |
| cohort percentile (of 112 peers) | 36 |
| implied end-window share | 0% |
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.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 1.80x | 5 | expensive |
| Earnings | 1.73x | 5 | expensive |
| Relative | 0.76x | 5 | justifies |
| Growth | 0.67x | 3 | justifies |
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 9.0%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $361.00 | 0.58x | yes | FCF base $1.4B, growth 11% (input: historical growth), terminal g 4.0%, WACC 9.0%, 6yr projection |
| DCF Exit Multiple | Growth | $312.21 | 0.67x | yes | Exit EV/EBITDA: 9.1x / 11.1x / 13.1x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $274.24 | 0.76x | yes | P/E 24x (static sector reference · 2026-04), scenarios: 19.8x / 24.0x / 28.2x (bear / base = reference held flat / bull), EV/EBITDA 16x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $98.84 | 2.11x | yes | BV/sh $65.77, ROE (TTM) 13.9%, ke 9.3% |
| Two-Stage Excess Return | Asset | $119.94 | 1.74x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $225.80 | 0.92x | yes | Rev $11.3B, growth 11% (input: historical growth; tapered), Terminal P/S: 1.7x / 2.1x / 2.4x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $130.04 | 1.60x | yes | EPS $9.05, growth 14% (input: historical EPS growth), PEG=1.58 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $137.20 | 1.52x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $1.55B × (1−21%) / WACC 9.0% → EPV (no growth) |
| Residual Income | Asset | $123.94 | 1.68x | yes | BV $65.77 + 5yr PV of (ROE (TTM) 13.9% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $115.72 | 1.80x | yes | √(22.5 × EPS $9.05 × BVPS $65.77) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $304.63 | 0.68x | yes | EBITDA $2.19B × sector EV/EBITDA 16.0x |
| FCF Yield | Earnings | $120.33 | 1.73x | yes | FCF $1326.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $112.03 | 1.86x | yes | SBC-adj FCF $1.24B (FCF $1.33B − SBC $0.09B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $282.44 | 0.74x | yes | EPS $9.05 × (8.5 + 2×14.4%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $28.07 | 7.42x | yes | BV $65.77 × (ROIC 3.8% / WACC 9.0%) |
| P/Sales Sector | Relative | $402.79 | 0.52x | yes | Revenue $11.28B × sector P/S 4.0x |
| PEG Fair Value | Relative | $195.06 | 1.07x | yes | EPS $9.05 × (PEG 1.5 × growth 14.4% (input: historical EPS growth)) → PE 21.6x |
| Earnings Yield | Earnings | $97.84 | 2.13x | yes | EPS $9.05 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $5.3b |
| Net debt / NOPAT (after-tax) | 4.28x |
| Net debt / operating income (pre-tax) | 3.38x |
| Share count CAGR (buyback) | -1.9% |
| Burning cash | no |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- Quest Diagnostics is one of the two national clinical-lab giants, and scale is the whole game: it runs roughly $11 billion of testing revenue through an automated network that lets it process a new requisition at low incremental cost, which is why volume growth drops to the bottom line.
- The most surprising thing about the stock is what the price assumes: at about 17 times operating income the market is priced for the business to shrink slightly, even as Quest just grew revenue 9.2% and lifted volume nearly 11%.
- The biggest risk is the payer: government programs and insurers "have taken steps to reduce the utilization and reimbursement of healthcare services, including clinical testing services," a slow squeeze on the price per test that the volume engine has to keep outrunning.
Bull Case
The counterintuitive fact at the center of Quest is that the market is pricing it for decline while the business is plainly growing. Strip the price down and it implies operating profit shrinking a few percent a year for five years. Yet in the most recent quarter Quest grew revenue 9.2% to $2.90 billion, with organic growth of 9.0% and requisition volume up 10.9%. A business growing volume at a double-digit clip is not a business in decline, and the gap between what the price assumes and what the company is doing is the heart of the bull case.
The engine behind that growth is scale, and it compounds. As one of two national reference laboratories, Quest can absorb new testing volume across an automated network at low incremental cost. The 10-K frames automation as a deliberate lever, noting it "can yield many benefits, including improving our quality and competitiveness, strengthening our foundation for growth, supporting our growth strategy." Volume comes from two reinforcing sources: acquisitions and partnerships that route hospital and health-system testing to Quest, with the Fresenius relationship and the Corewell Health joint venture together contributing meaningfully to recent volume growth, and a steady drumbeat of tuck-in lab deals. Because the fixed-cost network is already built, each incremental requisition carries high marginal profit, which is how high-single-digit revenue growth turns into low-double-digit earnings growth.
The higher-value layer is advanced diagnostics, and it is the part that can re-rate the business. Quest is pushing into specialized tests with real pricing power, including the AD-Detect blood test for Alzheimer's disease, plus double-digit growth in brain-health and cardiometabolic testing. These are not commodity blood panels; they are differentiated tests that command better economics and grow faster than the base business. Quest also returns capital steadily, shrinking its share count about 2% a year while funding its acquisition program. Management raised full-year 2026 guidance to revenue of $11.78 billion to $11.9 billion and adjusted EPS of $10.63 to $10.83. A defensive, scale-advantaged business growing high single digits, priced as if it will shrink, with a high-value diagnostics layer building underneath, is the bull case in one line.
Bear Case
The bear case is the slow grind of reimbursement, the structural headwind that defines this sector. Quest gets paid per test, and the people who pay, government programs and commercial insurers, are relentlessly trying to pay less. The 10-K states it directly: "Government payers, such as Medicare and Medicaid, have taken steps to reduce the utilization and reimbursement of healthcare services, including clinical testing services." A large share of Quest's revenue runs through the Medicare Clinical Laboratory Fee Schedule and capitated arrangements, where Quest recognizes "revenue based on a predetermined monthly reimbursement rate for each member of an insurer's health plan regardless of the number or cost of services." The volume engine is real, but it is running up a down escalator: every year the price per test ratchets lower, and volume has to grow just to stand still on revenue.
The demand-cycle and competitive dynamics add to the pressure. Lab testing volume tracks doctor visits and the broader healthcare utilization cycle, which can soften, and Quest faces a structural competitive threat from hospitals insourcing their own testing. The filing notes that hospitals "generally maintain on-site laboratories to perform testing on their patients" and that health systems can pull testing back in-house, reducing the very referrals Quest's growth strategy depends on. Add the longer-term threat from point-of-care and at-home testing that bypasses the central lab entirely, and the durability of the volume growth is less certain than a single strong quarter suggests. The customer base is also concentrated in a handful of large payers, so a single contract renegotiation can move the numbers.
The acquisition-dependence is the financial wrinkle. Much of Quest's growth comes from buying volume rather than generating it organically, which carries integration risk and has loaded the balance sheet with about $5.3 billion of net debt, more than three times operating income. Some deals carry earnouts, with one structured to pay up to an additional $50 million "dependent upon the Company receiving reimbursement coverage from the Centers for Medicare and Medicaid Services," a reminder that even acquired growth hinges on the reimbursement decisions Quest does not control. The price already reflects low expectations, so the bear is not an overvaluation argument; the cheap multiple is the point. The bear is that the reimbursement squeeze, hospital insourcing, and acquisition-funded growth combine to keep Quest a low-growth, capital-hungry business, and that the market's pessimism, while it looks excessive against one quarter, may be pricing the structural reality correctly over the full cycle.
Valuation
The arithmetic of Quest's price is unusually undemanding. At about 17 times operating income, the inversion implies operating profit declining roughly 3% a year for five years. In other words, the price does not require Quest to grow at all; it bakes in a mild decline. The current operating margin near 14% sits well above the roughly 5% the price implies it can sustain, so the price is assuming meaningful margin erosion as well. Against a company that just grew revenue 9% and volume nearly 11%, that is a pessimistic bar, which is why the framework reads the priced-in assumption as comfortably within range and in the lower half of the healthcare peer multiple.
The methods we use to triangulate split along a familiar line. The growth-based discounted cash-flow methods and the peer-multiple lens land above the price, crediting Quest's demonstrated growth and the scale economics; the asset and current earnings-power lenses land below, weighed down by the goodwill from acquisitions and a return on invested capital held down by the price paid for that growth. The relative lens, valuing Quest against healthcare peers, also sits above the price. Read together, the pattern says a steady, scale-advantaged business priced cheaply relative to both its peers and its own cash generation, with the conservative lenses reflecting the reimbursement and acquisition-debt overhang rather than an overvaluation.
Solvency is the one place to apply real caution. Net debt of about $5.3 billion is more than three times operating income, the legacy of an active acquisition program, and while the cash flow comfortably services it, the leverage limits flexibility and is a real consideration in a business facing reimbursement pressure. The share count is shrinking about 2% a year, so capital is being returned even as deals are funded. The downside is bounded by a defensive, recession-resistant revenue base, people need lab tests in any economy, and by the scale position that is genuinely hard to replicate. The buyer at this price is paying a below-peer multiple for a high-single-digit grower, betting that the volume and advanced-diagnostics engine keeps outrunning the reimbursement squeeze, with the acquisition debt as the main thing that could constrain the story.
Catalysts
Quest's first quarter of 2026 was a clean beat-and-raise. Net revenues rose 9.2% to $2.90 billion, with 9.0% organic growth and requisition volume up 10.9%, reported diluted EPS climbed 15.5% to $2.24, and adjusted diluted EPS grew 13.1% to $2.50. The volume figure is the one that matters most for a scale business: when requisitions grow double digits against a largely fixed-cost network, the operating leverage shows up immediately in earnings, which is exactly what happened.
The growth was broad-based and partly strategic. Advanced Diagnostics led, including the AD-Detect blood tests for Alzheimer's disease, with double-digit growth in brain-health and cardiometabolic testing, and the consumer-initiated testing channel added to the result. On the partnership side, the Fresenius relationship and the Corewell Health joint venture together contributed roughly 7 percentage points of organic volume growth, and Quest is advancing the Corewell venture with a new lab in Southeast Michigan planned to open next year. These are the volume sources, acquisitions, health-system partnerships, and higher-value tests, that the bull case relies on.
On the strength of the quarter, management raised full-year 2026 guidance to revenue of $11.78 billion to $11.9 billion and adjusted EPS of $10.63 to $10.83, implying roughly 7% to 8% growth. The catalysts to watch from here run in both directions. On the constructive side, continued double-digit volume growth, further Advanced Diagnostics momentum, and new health-system partnerships would keep validating the gap between the cheap multiple and the actual growth. On the cautious side, any adverse move in Medicare lab reimbursement, a slowdown in acquisition-driven volume, or signs of hospitals reclaiming in-house testing would pressure the story. The recurring debate in Street research, centered on discount rates, margins, and the appropriate multiple, is really a debate about whether the reimbursement squeeze eventually catches the volume engine.
Peer Cohorts (Per Segment, With Filing Citations)
Diagnostic Information Services (DIS) (reported)
- LH (LABCORP HOLDINGS INC.)
- (no filing in the citation store)
- NTRA (NATERA, INC.)
- (no filing in the citation store)
- GH (GUARDANT HEALTH, INC.)
- (no filing in the citation store)
- RDNT (RadNet, Inc.)
- (no filing in the citation store)
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.
- 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.
Sources
Q1 2026 results, April 2026 · Q1 2026 earnings call · Q1 2026 guidance