Quest Diagnostics IncorporatedDGXNYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $432.03 per share(market-calibrated)

+105.5%

Upside to Fair Value

Current

$210.25

Pure Model

$472.62

Fair Value

$432.03

Bull Case

$610.49

Bear Case

$366.62

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

0.50%

Calibrated Growth

2.13%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $472.62.

What's Driving This Ratingfor DGX

↓

CapEx normalizing toward maintenance

Historical CapEx is 3.93% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$69M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 16.48% — below the sector mature average of 20.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $3.1B (19.08% margin).

→

Moderate revenue growth

Analyst consensus projects 6.59% revenue growth, fading to 3.00% by Year 10. Revenue reaches $16.0B (vs $11.0B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 250bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 65.67% indicates efficient cash generation. FCF reaches $2.5B by Year 10 (15.32% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.68

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)7.54%

Cost of Debt

Pre-tax Cost of Debt2.75%

Tax Rate23.09%

After-tax Cost of Debt2.12%

Equity Weight (E/V)77.13%

Debt Weight (D/V)22.87%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (77.13% × 7.54%) + (22.87% × 2.12%)

= 6.30%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$11.8B	$12.8B	$13.8B	$14.7B	$16.0B
EBIT	$1.9B	$2.1B	$2.4B	$2.7B	$3.1B
Tax	$447M	$485M	$548M	$616M	$706M
NOPAT	$1.5B	$1.6B	$1.8B	$2.1B	$2.4B
+ Depreciation	$500M	$543M	$588M	$624M	$682M
- Capex	$462M	$489M	$517M	$534M	$561M
- Δ NWC	$26M	$20M	$14M	$15M	$17M
Free Cash Flow	$1.5B	$1.7B	$1.9B	$2.1B	$2.5B
Discount Factor	0.941	0.833	0.737	0.652	0.543
Present Value	$1.4B	$1.4B	$1.4B	$1.4B	$1.3B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.5B

Terminal Growth Rate3.00%

WACC6.30%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$76.7B

PV of Terminal Value$41.6B

Exit Multiple Method

Year 10 EBITDA$3.7B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$89.7B

PV of Terminal Value$48.7B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$13.8B

PV of Terminal Value$41.6B

Enterprise Value$55.4B

(-) Net Debt$6.5B

Equity Value$48.9B

Shares Outstanding111M

Price per Share$440.68

Exit Multiple Method

PV of Projected FCFs$13.8B

PV of Terminal Value$48.7B

Enterprise Value$62.5B

(-) Net Debt$6.5B

Equity Value$56.0B

Shares Outstanding111M

Price per Share$504.55

Pure Model Fair Value

$472.62

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
4.30%	$667.06	$703.28	$672.23	$642.65	$614.46
5.30%	$517.60	$555.25	$609.29	$642.65	$614.46
6.30%	$427.59	$447.14	$472.62	$507.20	$556.84
7.30%	$364.58	$376.12	$390.35	$408.32	$431.74
8.30%	$316.60	$323.99	$332.77	$343.39	$356.48

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$366.62

74.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.84

Base Case

$472.62

124.8% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.68

Bull Case

$610.49

190.4% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.57

Key Assumptions & Drivers• Healthcare Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth6.59%

Year 3 Revenue Growth4.57%

Year 5 Revenue Growth3.00%

Year 7 Revenue Growth3.00%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin16.48%

Terminal EBIT Margin20.00%

Tax Rate23.09%

Historical Capex / Rev3.93%

Terminal Capex / Rev3.50%

NWC / Revenue3.57%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 24x EV/EBITDA (Healthcare sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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