PALO ALTO, Calif. (CNN/Money) -
In these times of scandal and fraud, I'm devoting my columns this week to identifying companies you can trust.
On Monday I featured Illinois Tool Works. Today, it's Quest Diagnostics (DGX: up $3.31 to $78.32, Research, Estimates), the country's leading operator of clinical labs for such routine tests as urinalyses, pap smears and cholesterol checks. Odds are you've been a customer of Quest without even knowing it.
The funny thing about Quest being "safe," -- and I use the quote-unquote construction because these days nothing but the area under your mattress is completely safe -- is that it began its current life with the tinge of scandal.
The business dates back to 1967, when it was known as MetPath. In 1982, Corning acquired MetPath and built it up through a series of acquisitions. One of those purchased companies got into a nasty spat with the federal government over a little billing disagreement that ended up with Corning paying a huge settlement. Corning decided a scrubbed up Quest would do best on its own, so it spun off the company to shareholders.
And look at it now. The stock is up ten-fold since early 1997. The company has done two more sizable acquisitions and is the biggest in its industry by far. And its timing couldn't be better. As Quest noted recently, "a decreasing influence by managed care organizations on the ordering of clinical laboratory testing by physicians has led to renewed growth in testing volumes." Translation: the days of HMOs telling doctors what tests they can and can't do are waning, which means more business for Quest.
As such, the company quietly rakes it in by performing more than 100 million tests a year. It earned $162 million, or $1.92 per share, last year on revenues of $3.6 billion. U.S. Bancorp analyst Angela Samfilippo reckons Quest is worth 30 times her 2003 earnings estimate of $3.85 per share, given its projected 36 percent projected growth rate in 2002.
That would work out to $115. But these days investors aren't so much looking for giant gains as for equities that won't go away. This year Quest's shares are up modestly in a down tape. People aren't deciding not to get ill anymore. You be the judge.
Guilt by association?
At least one wag cut, pasted and sent to me the portion of a securities filing by Illinois Tool Works (ITW: down $0.12 to $66.44, Research, Estimates), that noted the company's auditor is Arthur Andersen LLP. The suggestion was obvious, that there must be something screwy with ITW's books because Andersen audited them.
| |
RECENTLY BY ADAM LASHINSKY
| |
| | |
| | |
|
Hey, I'm the first person to pursue a conspiracy theory when it comes to accounting shenanigans. But while it's one thing to say that Andersen didn't do a good job of auditing a bunch of crooked companies, it's another thing to suggest that every company it audited was rotten.
ITW, for what it's worth, replaced Andersen on May 10 with Deloitte & Touche. The old-economy company noted in a securities filing that it hadn't previously engaged Deloitte & Touche as a consultant on any matters regarding its audits.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at adam_lashinsky@timeinc.com.
Sign up to receive The Bottom Line by e-mail.
|
