Quest Diagnostics Incorporated (DGX)

Conclusion

Quest Diagnostics provides diagnostic testing and information services across the United States to physicians, hospitals, health plans, employers and patients, through laboratories, patient service centres and call centres. At a price of 259.67 USD on 2026-11-09, the company has a market capitalisation of 28.66 billion USD and an enterprise value of 34.15 billion USD.

The verdict is overvalued. The price-to-earnings ratio of 25.4 compares with a ten-year median of 17.9, enterprise value to EBITDA of 14.8 with 12.0, and price to free cash flow of 20.8 with 16.1. The DCF gives 202.92 USD per share and the fair value from historical multiples is 193.28 USD. The fair value band runs from 158.48 to 237.72 USD with a midpoint of 198.10 USD, a margin of safety of -23.7% at the current price. The reverse DCF implies growth of 6.8% a year, while revenue grew 3.2% a year over five years and free cash flow per share grew only 0.6% a year over the same period.

The strongest numbers are free cash flow conversion of 121.8% over the last twelve months, a Piotroski score of 7 out of 9, and ROIC of 10.1% against a WACC of 8.0%. The weakest are earnings per share, which fell 3.6% a year over five years, the price-to-earnings ratio of 25.4 against its median of 17.9, and net debt to EBITDA of 2.38.

Financial health

Financial strength is green, held up by the Altman Z-score of 3.84 and a current ratio of 1.70. Net debt to EBITDA of 2.38 on a trailing basis, debt to equity of 0.82 and interest coverage of 6.76 times are assessed as neutral. The quick ratio is 1.37. The Altman Z-score sits in the safe zone, although that model was designed for manufacturers and Quest is a services company. Insolvency risk: low, about 0.5% by the estimate of the Ohlson model over one to two years. The company's balance sheet does not signal near-term distress, but leverage is moderate rather than light.

Earnings quality

Earnings quality is green. Free cash flow conversion is 121.8% over the last twelve months and 110.9% over five years, and the accrual ratio is -5.5%, which means cash earnings exceed reported earnings. Stock-based compensation is 0.74% of revenue, and free cash flow after it is 1.29 billion USD. The share count fell 3.6% a year over five years, reflecting buybacks. The Piotroski score is 7 out of 9 and the Beneish M-score of -2.64 reads as unlikely to indicate manipulation. The company beat earnings expectations in all eight recent quarters, by 4.4% on average. Estimates for the current year rose, with 14 upward revisions and one downward in the last 30 days, while next-year estimates fell 0.5% over 90 days.

Profitability

Profitability is green. Gross margin is 33.2% against a ten-year median of 34.8%, operating margin is 14.6% against 14.9%, and net margin is 9.5% against 9.7%. ROIC of 10.1% against a WACC of 8.0% gives a ROIC minus WACC value of 2.1%, which is assessed as value creating. Its five-year median is 9.1%. Return on equity is 14.8%, but the DuPont split shows part of that comes from leverage: a net margin of 9.0%, an asset turnover of 0.68 and an equity multiplier of 2.26 for 2025. The return on capital, not leverage, is what supports the business.

Growth

Growth is yellow. Revenue compounded at 3.7% over three years, 3.2% over five and 4.0% over ten. Earnings per share compounded at 3.1% over three years, fell 3.6% a year over five, and rose 6.0% over ten. Free cash flow per share grew 2.6% over three years, 0.6% over five and 12.3% over ten. Revenue grew in 7 of the 10 comparable years. Analysts expect earnings per share to grow 5.8% next year, which is a modest rebound after the weak five-year record and falls short of the growth the share price implies.

Valuation

Valuation is red. Every multiple is above its ten-year median: price-to-earnings 25.4 against 17.9 (a premium of 41.8%), enterprise value to EBITDA 14.8 against 12.0 (23.2%), price to free cash flow 20.8 against 16.1 (29.5%), price to sales 2.42 against 1.76 (37.5%) and price to book 3.76 against 2.80 (34.4%). The DCF gives 202.92 USD per share at a discount rate of 8.9%, with terminal growth of 2.5%. The fair value band of 158.48 to 237.72 USD is built on fixed assumptions and is an order of magnitude, not a price target. The free cash flow yield is 4.8% and the earnings yield 3.9%. The dividend yield is 1.3%, with a payout of 26.8% of free cash flow.

Risks

If earnings per share keep falling as they did over five years, the premium to historical multiples will be hard to justify, and the implied growth of 6.8% would not be reached. Net debt of 2.38 times EBITDA limits the room for acquisitions or buybacks if earnings weaken. About 55% of the DCF value sits in the terminal value, so small changes to the 8.9% discount rate would move the result materially. Beta of 0.545 gives little sign of market-driven volatility, but it does not measure business risk. This analysis does not include a debt maturity schedule or revenue by segment, so refinancing risk and the contribution of each business line cannot be judged.