IDEXX Laboratories, Inc. has set itself up for significant growth in upcoming quarters thanks to the perennially successful CAG diagnostic products and services. The company’s international business has been thriving due to an expanded global commercial capability. However, IDEXX is not immune to macroeconomic challenges and foreign exchange fluctuations.
In the past year, this Zacks Rank #3 (Hold) stock has seen a solid 8.9% increase, outperforming the industry average of 3.7% and the S&P 500 composite’s 22.1% growth.
The renowned medical device company commands a market capitalization of $46.56 billion, with an estimated long-term earnings growth rate of 16.4% compared with the industry’s 13.46. Furthermore, IDEXX’s earnings have consistently surpassed estimates in the past four quarters, with an average positive surprise of 8.30%.
But, what makes this stock a compelling investment choice?
The Good News
CAG Continues to Perform Well: Investors are banking on the sustained growth of IDEXX’s CAG business. In the fourth quarter of 2023, the recurring revenues of CAG Diagnostics increased by 10% organically, supported by an average global net price improvement of 6-7%. This consistency, juxtaposed with solid execution drivers, has enabled IDEXX to achieve a level of growth above sector standards.
Strong Global Performance: Expanding its commercial footprint is a keystone of IDEXX’s customer engagement strategy. Its latest commercial expansion in the United States, the first in four years, underpins the beneficial impacts. Additionally, IDEXX notched up substantial organic gains across major testing modalities in the fourth quarter of 2023.
ProCyte One: A Long-Term Growth Component: IDEXX’s growing installed base in hematology is not just driving recurring revenues but also bolstering the clinic business. ProCyte One also bolsters the company’s long-term growth ambition in international markets, where most veterinarians are qualified to perform hematology testing. This momentum continued to be solid in 2023, contributing to the expansion of the global premium instrument installed base.
The Challenges
Macroeconomic Headwinds Put Bottom Line Pressure: Global macroeconomic conditions, including inflation, supply chain disruptions, fluctuations in foreign currency exchange rates, and volatility in capital markets, have the potential to adversely affect IDEXX’s operational results. These challenges, alongside geopolitical instability including the current conflict in Ukraine, have disrupted IDEXX’s supply chain operations globally.
Foreign Exchange Headwind: The majority of IDEXX’s consolidated revenues are derived from the sale of products in international markets. This significant exposure led to a negative impact on the company’s financials, particularly with the strengthening of the U.S. dollar relative to other currencies in 2023.
Estimate Trend
The Zacks Consensus Estimate for IDEXX’s 2024 earnings per share (EPS) has seen an upward revision, from $10.98 to $11.13 in the past 60 days.
Additionally, the Zacks Consensus Estimate for the company’s 2024 revenues is projected at $3.99 billion, indicating a 9% rise from the year-ago reported figure.
Potential Investments
Better-ranked stocks from the broader medical space include Stryker Corporation, Cencora, Inc., and Cardinal Health.
Stryker, holding a Zacks Rank #2 (Buy), posted a strong fourth-quarter 2023 financial performance, outpacing the consensus estimates and demonstrating consistent earnings growth.
Cencora, also a Zacks Rank #2, exceeded expectations in their first-quarter fiscal 2024 results, exhibiting strong financials.
Likewise, Cardinal Health reported robust second-quarter fiscal 2024 earnings, surpassing expectations and showcasing sustained earnings growth.
At face value, IDEXX seems like a compelling investment choice with its long-term growth prospects, however, investors should tread cautiously given the macroeconomic headwinds it faces. Given that, careful monitoring of this stock is advised, keeping a weather eye on how the company navigates these potential pitfalls.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
