It’s time for investors to sell shares of Quest Diagnostics , according to Citi. Analyst Patrick Donnelly downgraded shares of the medical testing company to sell from neutral, citing risks ahead to the company earnings per share guidance and 4% to 5% long-term growth guide for its base business. “While management has continued to reiterate the $8.50 earnings number for FY23, even if we give the company credit for hitting this, we see the multiple as inflated and at risk for compression,” Donnelly wrote in a note to clients Thursday. “The company is trading above a 3x P/E spread vs. LH, well above the prior 2-year average of 1.3x which we no longer think is warranted.” Quest Diagnostics’ lower operational leverage makes the company increasingly sensitive to modest cost hikes, Donnelly said. That could pose risks to 2023 estimates. “Even though the company has seen stable to positive reimbursement in the majority of its Health Plan agreements and improved pricing overall, we remain cautious,” he wrote. Donnelly also said investors are failing to account for how a potentially serious flu season could impact Quest Diagnostics. “As flu symptoms screen like COVID, we believe patients could forgo both routine and esoteric testing as well as these consumer-initiated tests which traditionally would benefit DGX,” he said. “Further, flu tests are more heavily conducted at the Point-of-Care vs. outsourced to labs like DGX and LH.” Despite roughly 14% since the beginning of 2022, Citi expects more downside ahead for the stock. The bank trimmed its price target on the stock to $125 from $145. That means shares could fall another 16% from Wednesday’s close. — CNBC’s Michael Bloom contributed reporting
