Jonathen Wellum, B. Comm, B. Sc
Quest Diagnostics Inc.
DGX-N
BUY
Jul 26, 2007
A leading laboratory and diagnostic business. Less susceptible to changes that could occur in the health sector in the US. Very profitable with a lot of free cash flow. Very defensive.
The biggest medical lab in the US. Likes the demographic play. A fixed asset base and the revenue just comes out and churns into profits. A free cash flow machine. At about 15.5 X earnings.
Laboratory testing. The leader in the United States. Fits in well with demographics and growth in diagnostic testing. Recently lost a contract with United Health, which took the stock down 20%. Good price. Great long-term position.
Diagnostic laboratory. Trades at about 7X cash flow. 9.4% free cash flow yield. Good leverage to the economy. Do about 5,000 patient tests daily. Clinics are nation wide and reach about 50% of doctors and hospitals..
Management couldn't give visibility into the business, so he sold it. Dominant national player. Have an opportunity to make further acquisitions. Will reassess this summer.
Benefits from the coronavirus. They run a national lab diagnostics and testing business. They have an immediate tailwind from the US about to mass-test people for the virus. Good price momentum, low-vol and trades at a 14% ROE at a so-so 20x earnings. (Analysts’ price target is $112.79)
Integrated task system in the defense sector. Interesting drone technology. Flying under the radar, a number of irons in the fire. The contract pipeline can be lumpy. One to watch.
(A Top Pick Mar 10/20, Up 22%) National diagnostic and testing in US and Canada. Picked this for covid mass testing capabilities. Stock has done reasonably well. Still cheap and cheaper than in March due to growing into valuation. 7.8x EBITDA, 23% ROE and 12x earnings. Great balance sheet. Low pay out ratio, smaller yield.
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