DGX is not cheap enough. I looked at the numbers and there has not been any revenue growth since 2008 and neither is any growth in the forecast. The growth in earnings/share came from buybacks, some rollups (which are expensive) but nothing organic. So at a 12.5x PE multiple for a no growth business, you get essentially a 7.5% bond like earnings yield.
I see easier ways to get a 7.5% bond yield, relative to high yield preferred, i think this equity has too much risk (fairly high debt).
What seems to happen is that while the test volume increases slightly, the average prices come down. recently, this trend appears to have accelerated, which caused the stocks of both LH and DGX to drop. There is no indication that this trend reverses anytime soon,which makes outperformance unlikely. For me, we have the situation, where the growth if this sector has turned negative, and the stocks have started to reflect that, but not enough to make the valuations compelling. |
