A Deadly Outbreak Is a Tailwind for This Medical-Diagnostics Leader

You can't turn on the news today without seeing the word "coronavirus"...

There are more than 80,000 cases in China, where the virus originated.

But more countries have also been affected. South Korea, Italy, and Iran each have more than 7,000 cases. And 554 cases have been reported so far in the U.S., with more likely coming.

As the virus spreads across the globe, and even into the U.S., markets are on edge.

Investors don't yet know how much the virus will hurt the global economy. The head of the International Monetary Fund ("IMF") said any hopes of strong global growth in 2020 were wiped out because of the virus. The virus (and its economic effects) even spurred emergency rate cuts from the Federal Reserve and Bank of Canada...

The outbreak has created massive demand for everything from masks and hand sanitizer to staples like food and water. Meanwhile, pharmaceutical companies and governments are scrambling to develop a treatment and a vaccine.

But while we always hear about stockpiling supplies and the effort to cure the coronavirus... and we hear about the number of people infected... we don't hear as much about the companies responsible for the tests.

Today's company will help lead the charge in testing...

Quest Diagnostics (NYSE: DGX) is a leading provider of diagnostic medical information services in the world. It has a $15 billion market cap, does $7.7 billion a year in sales, and employs 47,000 people.

It collects samples from hospitals and doctors' offices, tests them, and returns the results. Quest owns 3,700 courier vehicles and 23 aircraft to pick up and deliver test specimens. They make tens of thousands of stops each day.

And it has a wide reach...

Quest and its top competitor Laboratory Corporation of America (LH), best known by its brand name LabCorp, control about 45% of the U.S. market for medical diagnostics.

Quest serves one-third of all adult Americans and half the doctors and hospitals in the U.S.

More than 300,000 doctors are directly connected to the company through its Quanum online portal. Quest doctors and scientists publish more than 100 scientific articles per year in peer-reviewed journals.

In the age of information and connectivity, Quest is connected to more patients and their information than any other company. As a dominant player in the lab-testing market, it has built the world's largest database of clinical lab results – a highly valuable asset.

The lab-services industry continues to consolidate.

As one of the largest players in the industry, Quest has acquired more and more testing volumes from smaller, less-profitable players.

In January, Quest announced its latest deal, acquiring Memorial Hermann Health System's outreach labs.

Memorial Hermann is one of the largest nonprofit health systems in southeast Texas. Lab samples drawn from patients at its 90 outpatient facilities will now be analyzed at Quest's full-service lab in Houston.

Now, Quest can drive greater and greater volumes through its existing state-of-the-art labs. This will be a boost for the company's efficiency and profitability.

Quest is a large, mature, high-quality business. But that doesn't mean it's done growing – the company is still winning market share from its competitors. CEO Steve Rusckowski recently said Quest is taking market share from "multiple competitors, not just our chief competitor [LabCorp]."

Now, Quest is using its leading position to help tackle the coronavirus outbreak...

Last week, Quest announced that it was launching a test for the coronavirus (also called COVID-19) and would begin testing for the virus today.

The service will collect specimens of patients that fit the U.S. Centers for Disease Control and Prevention's ("CDC") testing criteria from hospitals and test them at Quest's labs.

Quest's wide reach should help the U.S. expand its testing for the virus.

And given Quest's position in the market, it could soon become a leading test facility for COVID-19. That should lead to more profits for Quest.

This was also noted by Rusckowski in a press release, who said Quest's national scale was a "vital complement" to the CDC and U.S. government as it combats the spread of the virus.

One thing's for certain – as the virus spreads, there won't be a shortage of demand for Quest's tests.

So Quest could play a key part in the U.S.'s response to the virus. It already is a leader in medical diagnostics. The high demand for COVID-19 tests, and Quest's recent entry into that market, should be an added tailwind for Quest's stock.

That's why, even as the broader market is selling off, DGX shares recently hit a new all-time high.

Sometimes investing is simple.