One of the things I do on a daily basis as a full-time investor is to conduct researches, as well as shortlist companies I can potentially invest my money in.

Recently, a company by the name of Quest Diagnostics Incorporated (NYSE:DGX) came into my watchlist – in today’s post, I will be sharing with you all the researches I have done about the company, including its financial performance, debt profile, as well as its dividend payout over the last 6 years (between FY2015 and FY2020), along with its latest quarter results (for the first quarter of FY2021 ended 31 March 2021.)

Before I begin, here are some background information about the NYSE-listed company, along with its business segments – incorporated in Delaware in 1990, in a nutshell, Quest Diagnostics Incorporated offers diagnostics testing services (ranging from the basic blood tests, to testing for cancer, cardiovascular disease, infectious disease, neurological disorders, etc.), clinical trials testing (through its joint venture company Q2 Solutions to help biopharmaceutical, medical device, and diagnostics customers improve human health through innovation that transforms science and data into actionable medical insights), healthcare IT (where its Quanum suite of technology and analytics solutions are used by over 200,000 physicians to order lab tests, receive timely results, share clinical information quickly and securely, and prescribe drugs), as well as wellness and risk management (where the company is a leading provider of programs to promote wellness and prevention of disease through conducting lab testing-based health assessments for common conditions such as diabetes and heart disease.)

Now that you have a better understanding about the company as well as its business operations, let us now dive in and take a look at some of the essential financial statistics:

Key Financial Performance Statistics (between FY2015 and FY2020)

Quest Diagnostics Incorporated has a financial year end every 31 December. In this section, you will find the company’s financial performance over the past 6 years – between FY2015 and FY2020:

Gross Revenue and Net Profit (US$’mil):

FY2015FY2016FY2017FY2018FY2019
Total Revenue
(US$’mil)
$7,493m$7,214m$7,402m$7,531m$7,726m
Net Profit
(US$’mil)
$709m$645m$772m$736m$858m
FY2020
Total Revenue
(US$’mil)
$9,437m
Net Profit
(US$’mil)
$1,431m

Quest Diagnostics Incorporated's Total Revenue and Net Profit between FY2015 and FY2020

Gross revenue saw year-on-year (y-o-y) gains in 5 out of 6 years (the only year which its revenue declined was in FY2016), where it climbed from US$7,493m in FY2015 to a high of US$9,437m in FY2020 – a compound annual growth rate (or CAGR) of 3.9%.

On the other hand, its net profit saw improvements in 4 out of the 6 financial years I have looked at (the 2 years that saw decline were in FY2016 and in FY2018.) Over a 6-year period, the company’s net profit managed to record a CAGR growth rate of 12.4%.

Gross and Net Profit Margins (%):

The following table is Quest Diagnostics Incorporated’s gross and net profit margins which I have computed:

FY2015FY2016FY2017FY2018FY2019
Gross Profit
Margin (%)
37.8%36.0%36.2%34.6%34.8%
Net Profit
Margin (%)
9.5%8.9%10.4%9.8%11.1%
FY2020
Gross Profit
Margin (%)
38.5%
Net Profit
Margin (%)
15.2%

Quest Diagnostics Incorporated's Gross and Net Profit Margins between FY2015 and FY2020

Over the past 6 years, the company’s gross profit margins have largely been hoovering between 34% and 38%, while its net profit margins have saw improvements over the most recent 3 years (between FY2018 and FY2020, where it went up from 9.8% to 15.2%.) Another thing to note is that its net profit margin, at 15.2% in FY2020, is the highest over the past 6 years.

Return on Equity (%):

For those of you who do not already know what Return on Equity (or RoE for short) is, in layman terms, it is the amount of profits (in percentage terms) a company manages to generate for every dollar of shareholders’ money it uses in its businesses.

Personally, I favour companies that are able to maintain its RoE at rates of above 15.0% consistently.

The following table is Quest Diagnostics Incorporated’s RoE I’ve computed:

FY2015FY2016FY2017FY2018FY2019
Return on
Equity (%)
15.1%13.9%15.7%14.1%15.2%
FY2020
Return on
Equity (%)
21.2%

Quest Diagnostics Incorporated's Return on Equity between FY2015 and FY2020

Between FY2015 and FY2018, its RoE have fluctuated quite a fair bit. However, in the subsequent years thereafter, it has grown steadily from 14.1% recorded in FY2018 to a high of 21.2% in FY2020 (the highest over a 6-year period.)

Also, the company have managed to maintain its RoE at above 15.0% in 4 out of the 6 years I have looked at – which passes my selection criteria.

Debt Profile (between FY2015 and FY2020)

Apart from its financial performance, another area I look at when I study a company is its debt profile – where my preference is towards companies with little or no debt (the latter very much preferred.)

So, how did Quest Diagnostics Incorporated fare in terms of its debt profile over the past 6 financial years (between FY2015 and FY2020)? Let us find out in the table below:

FY2015FY2016FY2017FY2018FY2019
Cash & Cash
Equivalents
as at the End
of Period
(US$’mil)
$133m$384m$137m$135m$1,192m
Total
Borrowings
(US$’mil)
$3,651m$3,734m$3,784m$3,893m$4,770m
Net Cash/Debt
(US$’mil)
-$3,518m-$3,350m-$3,647m-$3,758m-$3,578m
FY2020
Cash & Cash
Equivalents
as at the End
of Period
(US$’mil)
$1,158m
Total
Borrowings
(US$’mil)
$4,015m
Net Cash/Debt
(US$’mil)
-$2,857m

The company is in a net debt position in all of the 6 financial years I have looked at. Also, its total borrowings have increased over the years.

Despite of that, I noticed between FY2018 and FY2020, its net debt position have improved, due to a huge improvement in its cash and cash equivalents (especially between FY2018 and FY2019, which jumped from US$135m to US$1,192m.)

Dividend Payouts (between FY2015 and FY2020)

Quest Diagnostics Incorporated is one that pays out a dividend to its shareholders on a quarterly basis.

The following table is its dividend payouts over the past 6 years (between FY2015 and FY2020), along with their payout ratios:

FY2015FY2016FY2017FY2018FY2019
Dividend Per
Share (US$/share)
$1.52$1.65$1.80$2.03$2.12
Dividend Payout
Ratio (%)
31.2%36.6%32.7%38.4%33.8%
FY2020
Dividend Per
Share (US$/share)
$2.24
Dividend Payout
Ratio (%)
21.4%

Quest Diagnostics Incorporated's Dividend Payout to Shareholders between FY2015 and FY2020

As you can see from the table and chart above, the company has increased its dividend payouts to its shareholders every year over the past 6 years I have looked at – from US$1.52/share in FY2015 to US$2.24/share in FY2020 – a CAGR growth rate by 6.7%.

Also, in terms of its payout ratio, it seems that the company pays out no more than 40.0% of its earnings as dividends to its shareholders, while retaining the rest.

Quest Diagnostics’ Latest Q1 FY2021 Quarterly Results

On 22 April 2021, Quest Diagnostics released its latest quarterly results for the first quarter of the financial year 2021 ended 31 March 2021.

Let us take a look at the company’s latest set of results compared against the same time period last year (i.e. Q1 FY2020 ended 31 March 2020) to find out if it has improved or deteriorated:

Q1 FY2020Q1 FY2021% Variation
Total Revenue
(US$’mil)
$1,822m$2,720m+49.3%
Net Profit
(US$’mil)
$99m$469m> +100.0%
Gross Profit
Margin (%)
30.3%40.2%
Net Profit
Margin (%)
5.4%17.2%
Dividend Per
Share (US$)
$0.56$0.62+10.7%

Its total revenue and net profit both recorded strong improvements, partly contributed by a weak Q1 FY2020 due to a drop in testing volumes due to the Covid-19 pandemic.

Along with improvements seen in its top- and bottom-line, the company’s gross and net profit margins also saw pretty good gains compared to the same time period last year – with the former up by 9.9 percentage points (or pp), and the latter up by 11.8pp.

Finally, its dividend payout to shareholders also increased by 10.7% (compared to the same time period last year) to US$0.62/share (Q1 FY2020: US$0.56/share.)

Closing Thoughts

To sum up, reasons why I like the company include the CAGR growth in its revenue and net profit over the past 6 years I have looked at, along with its net profit margin and RoE improving steadily over the past 3 years. I also like the company for its increasing dividend payouts to shareholders every single year over the past 6 years.

On the other hand, the increase in its total borrowings over the same time period (between FY2015 and FY2020) is something I am not too comfortable with (as my personal preference is towards companies with little or no debt.)

Having said all of that, this post is by no means a recommendation to invest in Quest Diagnostics Incorporated. Everything I have just shared with you above is solely for educational purposes only. You should always do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not a shareholder of Quest Diagnostics Incorporated.

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