Part 4 Group Assignment-Quest Diagnostics Company

Andrew Morrissey

Nitin Narra

Lindsey Row

MBA 675

Team Project, Part One

St. Ambrose University

DaVita Inc., Laboratory Corporation of America Holdings (LabCorp), and Quest Diagnostics are three leading companies in the healthcare facilities and services industry. The following is an analysis of each company based on its financial strengths and weaknesses, an analysis of industry strengths and weaknesses and lastly, a comparative ranking of each companies’ stock performances in the secondary market.

In 2021, DaVita Inc’s operating income was $1.797 billion, operating cash flow from continuing operations was $1.931 billion, and free cash flow from continuing operations was $1.133 billion. DaVita invested $407 million in acquisitions and development in their businesses and $1.546 billion on repurchases of nearly 14 million shares of their common stock, reducing their shares outstanding by more than 11 percent since the beginning of the year. When looking at the raw financial statements, you can see that revenue is gradually increasing per year. Also, gross profit has seen gradual increases over the past couple years.

DaVita’s biggest strength was its growth in net investment income. This number on the income statement was very poor in 2017 and 2018. DaVita has shown a massive jump in this area, and it will only bring more benefits to their company. Net investment indicates how much a company is spending to maintain and improve its operations. If net investment is positive, the company is expanding its capacity.

Operating expense is something that DaVita may need to look into if it keeps getting larger. If operating costs become too high, management may need to increase the price of their products in order to maintain profitability. DaVita could risk losing customers to competitors who are able to produce similar goods at a lower price point.

The total contractual obligation includes non refundable amounts a lessee is contractually obligated to pay to the lessor. DaVita is obligated to pay a lot of money to others in the forthcoming future. There will obviously always be money put towards this account, but this amount must come down otherwise this weakness could be exploited in the future.

LapCorp reported a gross profit of $56,243 billion, an increase of 33.34 percent from the previous year. The Company also reported a total revenue of $16,120.9 billion in 2021, an increase of 13.39 percent from the previous year. These figures can show an increase in demand for the Company’s products and services. Additionally, total operating cash flow for 2021 was $3,109.6 billion, an increase of 31.33 percent from 2020. Investments made by the company can also be attributed to these gains.

Cash and cash equivalents for 2021 was reported at 14,727 billion, an increase of 10.31 percent from the previous year. Net Property, Plant and Equipment (PP&E) in 2021 was $28,154 billion, an increase of 3.05 percent from the previous year. An increase in PPE makes sense when presented with the Company’s increase in revenue, more PP&E is needed for expansion in services and clients. Additionally, total liabilities decrease by over 10 percent in 2021 compared to 2020 (Laboratory Corporation of America Holdings, 2022).

LabCorp inventory in 2021 decreased by 5.43 percent. Given the increase in total revenue it is interesting to see that the Company is essentially “doing more” with less. This may be attributed to a change in the business model to a more service-based menu for clients but could also indicate unsustainable practices. Accumulated depreciation increased by 8.71 percent in 2021 compared to the previous year. This creates a larger liability for LabCorp.

LabCorp reported a total revenue of $16,120.9 billion in 2021 (increase of 13.39 percent from the previous year) total operating profit of $3,302.6 billion in 2021 (increase of 10.73 percent from the previous year) and total liabilities of $10, 112 billion in 2021 (decrease of 5.93 percent from the previous year).

Lastly, Quest Diagnostics' gross profit was $4,209,000 billion, a -6.462 percent decrease from the previous year. Furthermore, the company recorded 2021 total revenues of $1.078 billion, a drop from the previous year of -1.909 percent. These numbers can indicate a decline in consumer interest in the company's goods and services. Additionally, operational cash flow for 2021 increased by 20.80 percent from 2020 to $2.381 million. These benefits might also be attributable to investments made by the business.

The amount of cash and cash equivalents recorded for 2021 was $8.72 million, a 24.6 percent decrease from the previous year. In 2021, net property, plant, and equipment (PP&E) increased 3.27 percent to $2,304 million. With the company's income rising, a rise in PPE makes sense because more PP&E is required to expand services and clientele. Furthermore, total liabilities fall by more than 1.20 percent in 2021 compared to 2020. (Quest Diagnostics, 2020).

In 2021, inventory fell by 6.72 percent. The company is effectively "doing worse" with less given the decline in overall revenue.This may be explained by a shift in the company model to a menu that focuses more on customer service, but it could also be a sign of unsustainably aggressive business methods. In 2021, compared to the previous year, accumulated depreciation grew by 3.208 percent. As a result, the company now has a bigger obligation.

Quest Diagnostics reported a total revenue of $1,078,8 billion in 2021 (decrease of -1.909 percent from the previous year), total operating profit of $2,381 million in 2021 (increase of 20.8 percent from the previous year) and total liabilities of $70,49 million in 2021 (decrease of -1.20 percent from the previous year).

Healthcare services is one of the largest and fastest growing industries (Stasha, 2022). In recent years the industry has been largely impacted by the coronavirus pandemic. The pandemic identified the ability of many companies to provide telehealth/virtual services which expanded opportunities to serve more clients. Additionally, healthcare companies have the ability to diversify their offerings (For example, LabCorp offers drug research and development, manufactures testing supplies and more). While LabCorp has found success diversifying its offering, other companies find success in specialization.

For example, DaVita is known specifically for providing kidney care, which is an area that separates themselves from many others in the industry. There are many organizations that provide health care services, so being able to separate yourself from others with special expertise and experience is key.

In order to enhance outcomes for patients, healthcare systems, and companies, efficiency is necessary to regulate procedures and organizational structure. The functionality of the latest machinery is a wonderful asset for healthcare organizations since it not just provides significant reliability of care but also reduces costs. To benefit individuals, the healthcare system uses a wide range of professional tools, gadgets, and medicines in research laboratories, health care facilities, and centers.

Conversely, as the industry grows it has proven difficult to recruit and retain the necessary talent to maintain these advances in technology and expanded services. “A Sept. 21 MGMA Stat poll found that 73 percent of medical practices reported “staffing” as the biggest pandemic challenge heading into 2022,” (Medical Group Management Association, 2021). Advances in technology, as well as a myriad of factors mean that healthcare systems have large, fixed expenses, which often continue, making it challenging to keep finances flexible. Tariffs also greatly impact the industry’s supply chains on a global scale (Florida Tech Online, 2022).

As of October 26, 2022, LabCorp was listed at $231,96 per share, Quest Diagnostics at $143.51 per share and DaVita at $96.99 per share. The market expected LabCorp (LH) to deliver a year-over-year decline in earnings on lower revenues when it reports results for the quarter ended September 2022. This was consistent with LabCorp’s earnings call, released on October 27, 2022 (LabCorp, 2022).

DaVita HealthCare (DVA) came out with quarterly earnings of $1.45 per share, missing the Zacks Consensus Estimate of $1.65 per share. This compares to earnings of $2.36 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of -12.12 percent. This has shown an enormous drop in their stock price. The stock is currently down $24.09 as of October 28, 2022. DaVita HealthCare, which belongs to the Zacks Medical - Outpatient and Home Healthcare industry, posted revenues of $2.95 billion for the quarter ended September 2022, missing the Zacks Consensus Estimate by 1.08 percent. This compares to year-ago revenues of $2.94 billion. The company has topped consensus revenue estimates just once over the last four quarters (Yahoo! Finance, 2022).

Results for the three months ending September 2022 have been released by Quest Diagnostics, and they show declining profits and revenue compared to the same period last year. The average EPS prediction for the fiscal quarter ending December 2022 has fallen over the previous week from 1.96 to 1.9 (3.06 percent) and over the span of a month from 1.94 to 1.9 (2.06 percent) (NASDAQ, 2022).

To establish consistency, each company’s market ranking was based on the company’s debt-to-equity ratio. Debt-to-equity ratio is an important metric in corporate finance. It is a measure of the degree to which a company is financing its operations with debt rather than its own resources. According to 2021 financial statements from Morning Star, the market ranking of these companies based on debt-to-equity ratios is the following (MorningStar, 2022):

1. LabCorp (LH) , .70

2. Quest Diagnostics (DGX)

3. DaVita (DVA)

References

DaVita, Inc. Financial Information. Morningstar, Inc. (n.d.). Retrieved October 28, 2022, from https://www.morningstar.com/stocks/xnys/dva/financials

Financial challenges in Healthcare. Florida Tech Online. (2022, January 7). Retrieved October 30, 2022, from https://www.floridatechonline.com/blog/healthcare-management/financial-challenges-in-healthcare/

Labcorp announces 2022 third quarter results. Labcorp. (2022, October 27). Retrieved October 30, 2022, from https://ir.labcorp.com/news-releases/news-release-details/labcorp-announces-2022-third-quarter-results

Laboratory Corp of America Holdings LH Financial Information. Morningstar, Inc. (n.d.). Retrieved October 28, 2022, from https://www.morningstar.com/stocks/xnys/lh/financials

Laboratory Corporation of America Holdings. (2022, February 25). Form 10‐K. Retrieved from https://ir.labcorp.com/sec-filings/sec-filing/10-k/0000920148-22-000015

Medical Group Management Association (2021, September 21). Staffing, uncertainty among top pandemic challenges for medical groups heading into 2022. | Medical Group Management Association | Retrieved October 30, 2022, from https://www.mgma.com/data/data-stories/staffing,-uncertainty-among-top-pandemic-challenge

Stasha, S. (2022, September 29). Healthcare statistics for 2021: Policy advice. Healthcare statistics for 2021 | Policy Advice. Retrieved October 30, 2022, from https://policyadvice.net/insurance/insights/healthcare-statistics/

Quest Diagnostics Incorporated Common Stock (DGX) Earnings Report Date | Nasdaq. (2022). Nasdaq.com. https://www.nasdaq.com/market-activity/stocks/dgx/earnings

Quest Diagnostics Financial Information. Morningstar, Inc. (n.d.). Retrieved October 28, 2022, from https://www.morningstar.com/stocks/xnys/dgx/financials

Zacks Equity Research. Davita Healthcare (DVA) Q3 earnings and revenues lag estimates. Yahoo! Finance. Retrieved October 28, 2022, from https://finance.yahoo.com/news/davita-healthcare-dva-q3-earnings-114511139.html