Quest Diagnostics Inc. (DGX) announced that the U.S. Food and Drug Administration (FDA) has granted emergency use authorization (EUA) for a new laboratory technique that speeds up COVID-19 molecular diagnostic testing capacity and provides faster test results.
The diagnostic company said that the new lab method quickens the process of extracting viral RNA from specimens and is designed to help boost its daily capacity of COVID-19 molecular diagnostic tests for patients in the US.
Currently Quest has the capacity to perform 135,000 COVID-19 molecular diagnostic tests a day. The new method is slated to add an additional 35,000 tests a day over the next several weeks. Therefore, Quest now expects to perform 150,000 tests per day by next week and to continue to build additional capacity beyond that to 185,000 tests per day by Labor Day.
“Laboratory innovation is key to optimizing testing capacity for COVID-19,” said Quest CEO Steve Rusckowski. “We appreciate the collaboration of the FDA to bring this technique to several of our labs spanning the U.S. With more testing capacity, we expect to improve turnaround times for our customers and patients.”
Following the FDA approval, six of Quest’s US laboratories can now run the new RNA extraction method, including on pooled specimens. The labs are spread across the country to address high testing demand in states where the virus has been surging. The labs are in San Juan Capistrano and Valencia, California; Lewisville, Texas; Lenexa, Kansas; Chantilly, Virginia; and Marlborough, Massachusetts.
Quest Diagnostics’ shares have almost doubled since reaching a low in April and are trading 18% higher than at the start of the year.
Five-star analyst Donald Hooker at KeyBanc yesterday raised the stock’s rating to Buy from Hold with a $144 price target, saying that that the company is generating estimated earnings of around $1 per share from COVID-19 lab tests.
“Patients have re-engaged with the broader healthcare system faster than we had expected, resulting in a sharp recovery in DGX’s core lab testing,” Hooker wrote in a note to investors.
The analyst expects COVID-19 molecular and antibody testing to boost Quest’s revenue by over $1.8 billion and earnings by more than 5 cents per share in the second half of 2020. Looking ahead, he sees demand for COVID-19 testing to continue to be at this level through the middle of next year.
Overall, Wall Street analysts have a cautiously optimistic outlook on the stock. The Moderate Buy consensus consists of 8 Buys versus 4 Holds. The $139.09 average price target implies another 10% upside potential in the shares in the coming 12 months. (See Quest Diagnostics stock analysis on TipRanks).
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