Yahoo Finance Here's Why You Should Retain IDEXX (IDXX) Stock for Now
IDEXX Laboratories, Inc. IDXX is gaining from strength in the Companion Animal Group (CAG) segment. The company ended the third quarter of 2021 with better-than-expected results. Robust international growth in the reported quarter buoys optimism. Contributions from the recently-acquired ezyVet also appear promising. However, escalating expenses and foreign exchange woes raise apprehension over the company.
Over the past year, shares of this Zacks Rank #3 (Hold) company have gained 27.7%, way ahead of the industry’s 3.9% rise. The S&P 500 rose 23.4% during the same period.
The renowned medical device company has a market capitalization of $49.74 billion. Its earnings for third-quarter 2021 surpassed the Zacks Consensus Estimate by 7.9%.
Over the past five years, the company registered earnings growth of 24.6%, ahead of the industry’s 3.3% rise and the S&P 500’s 2.8% increase. The long-term expected growth rate is estimated at 24.3%, compared with the industry’s growth expectation of 15.6% and the S&P 500’s estimated 11.6% growth.
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Let’s delve deeper.
Factors at Play
Q3 Upsides: IDEXX exited the third quarter of 2021 with better-than-expected earnings and revenues. Solid organic-revenue growth is encouraging. The top line in the quarter was driven by strong sales at the CAG and Water businesses. IDEXX also achieved a record third-quarter level of premium instrument placements with strong global gains across the company’s core platforms. Expansion of operating margin and raised full-year earnings guidance are other upsides.
Strong Global Performance: We are upbeat about IDEXX’s consistent robust international performance. International revenues in the third quarter were up 8.2% organically, primarily aided by a double-digit gain in CAG and Water businesses.CAG Diagnostic recurring revenues in the reported quarter reflected 14% growth in international regions. IDEXX VetLab consumable revenues increased 14% organically in the third quarter, reflecting double-digit gains in the United States and continued high growth in international regions.
CAG Arm Grows: IDEXX derives the lion’s share of its revenues from the CAG segment. In the third quarter, CAG revenues rose 11.5% year over year organically, driven by double-digit gains across the U.S. and international markets. The year-over-year improvement was driven by 15% organic growth in veterinary software services and diagnostic imaging revenues, in addition to benefits from the company’s recent ezyVet acquisition and 33% year-on-year growth in CAG Diagnostic instrument revenues. Continued strong U.S. CAG diagnostic recurring revenue growth was supported by year-on-year gains in U.S. clinical business. In terms of CAG instrument placements, the quarter reflected strong gains across the U.S. and international regions. Strong global placement gains across core platforms like Catalyst (up 22%), premium hematology (up 62%), and SediVue (up 30%), raise optimism.
Downsides
Escalating Expenses: Escalating operating expenses are a matter of concern for IDEXX at present. In the third quarter, sales and marketing expenses rose 15% while research and development expenses increased 7.8%.
Foreign Exchange Headwind: The majority of IDEXX’s consolidated revenues are derived from the sale of products in international markets. Thus, the strengthening of the exchange rate for the U.S. dollar relative to other currencies affected the company’s revenues derived in currencies other than the U.S. dollar and on profits from products manufactured in the United States and sold internationally.
Impact of Third-Party Distribution: The instrument consumables and rapid assay products in IDEXX’s CAG segment are sold domestically and in certain other geographies by third-party distributors, who purchase products from IDEXX and sell them to veterinary practices, which are the end-users. As a result, distributor purchasing dynamics impact the company’s reported sales of these products.
Estimate Trends
IDEXX is witnessing a positive estimate revision trend for the current year. In the past 60 days, the Zacks Consensus Estimate for earnings has moved 0.4% north to $8.38.
The Zacks Consensus Estimate for fourth-quarter 2021 revenues is pegged at $779.9 million, suggesting 8.2% growth from the year-ago quarter’s reported number.
Key Picks
A few better-ranked stocks in the broader medical space are Varex Imaging Corporation VREX, McKesson Corporation MCK and NextGen Healthcare, Inc. NXGN.
Varex, carrying a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 5%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 115.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Varex has outperformed the industry it belongs to in the past year. VREX has gained 72.5% versus the industry’s 6% fall.
McKesson, carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 8.9%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.9%, on average.
McKesson has outperformed its industry over the past year. MCK has gained 22.7% versus the 11.1% industry rise.
NextGen, sporting a Zacks Rank #2, has a long-term earnings growth rate of 8.5%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 16%.
NextGen has outperformed its industry over the past year. NXGN has declined 9.8% versus the industry’s 42.9% fall.
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