Quest Stock Gets a Big Temporary Bump From Social Media Burp

It appeared on the lazy Friday before Memorial Day that Quest Diagnostics was on the block. Until it wasn't. And social media played a far larger role in the tale than salient facts.

The New Jersey-based laboratory, the nation's second largest, saw its stock shoot upward from $74 to $89 a share on May 22 after speculation that it may have been preparing for a sale and that it had retained the investment banking giant Goldman Sachs to handle the details. The potential sales price: $95 a share, or more than a 30 percent premium to its recent share price.

On the face of it, Quest pulling a massive deal makes some sense. It recently lost its number one position to LabCorp after it acquired the pharmaceutical giant Covance. And while the company is growing, it will do so only modestly for the foreseeable future.

However, the announcement did not come from official channels, but a Twitter posting from a would-be Master Of The Universe named Joe Kunkle. He runs a company in Pennsylvania called OptionsHawk, which sells a subscription service to investors wanting to make money on options, a chit that allows you to be able to buy a stock at a certain price at a certain time, regardless of what its trading price is. Options are priced far lower than the stocks they permit you to buy, and they are much more volatile.

Kunkle, however, quickly backpedaled on the rumor and deleted the tweet. "All I did was pass along what was said across the Internet on the market," he told Bloomberg News not long afterward. Kunkel also said he had no position in Quest stock or options.

Quest's stock dropped back rapidly—but not completely to its pre-rumor price. On the Tuesday after Memorial Day weekend, it was trading at $77 a share, up about 4 percent from the pre-Kunkle bump.

If the rumor proved an embarrassment to Kunkle, it nonetheless made some day traders extremely happy. "Woke up late, and made $800 shorting (Quest) in my first 5 mins in the market," tweeted one trader. "Covered Quest. Nice profit and & i didn't even have to subscribe to the service," wrote another trader, in reference to Kunkel's subscription business.

While the Twitterverse was yapping about Quest spiking and falling, less ethereal parties—such as the actual company and the stock analysts who cover it—were much more closed-mouthed.

"We do not comment on rumors or speculation," Quest spokesperson Wendy Bost said in an email.

Amanda Murphy, an analyst who covers Quest for William Blair & Co. in Chicago, gave a similar response. "Unless there's substantiated news, we can't comment on it," she said, adding that the behavior of the stock price should suffice as to the authenticity of the takeover news.

One analyst, Wells Fargo Securities' Gary Lieberman, actually stuck his neck out in a research note he issued not long after the furor subsided. Quest, he said, is not likely to combine with another large lab, although he did say the company going private is "more feasible." However, Quest's lack of hard assets relative to other health care companies going private and the need to finance some $9 billion in debt to execute a deal at $95 a share to go private may prove obstacles, he wrote.

Lieberman is one of the tougher analysts of Quest, and he maintains an underperform rating with a future target price of $60 to $65 a share. Whether that's Quest's actual future or another one may be formulated remains to be seen.

Takeaway: Rumors swirling around the future of Quest appear to be just rumors.