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  • Quest Diagnostics Seems Primed For Purchase [View article]
    Not bad, although a bit heavy on comps. One thing you overlooked: you mention the UNH loss as one reason DGX has seen its multiple compress, but don't forget that in 2006 (vs 05 and 04), EPS did NOT grow faster than sales.

    In other words, operating leverage is disappearing. In order to have earnings grow faster than sales, DGX has to expand its margins. And if its margins expand, then the PE will follow suit.

    Appendix: In 2006, sales grew 15%, but EPS 11%
    In 2005, sales grew 8%, and EPS 14%
    In 2004, sales grew 7%, and EPS 16%

    Notice that in 06, the trend cracked -- if you think DGX can improve its margins, then I agree, the stock has some upside.
    Jul 14 23:26 pm |Rating: 0 0
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