Investments In inVue Dx, Cancer Dx, And Software Platforms Will Boost Future Performance

Key Takeaways

• Expansion in international markets and innovative diagnostics is expected to drive revenue growth and increased veterinary practice adoption.
  
• Focus on software expansion and strategic customer agreements should enhance customer retention, drive recurring revenue, and benefit operating margins.
  
• Increased operating expenses and litigation costs could pressure margins and earnings, especially amid unfavorable exchange rates and declining same-store visit growth.

Catalysts

Develops, manufactures, and distributes products for the companion animal veterinary, livestock and poultry, dairy, and water testing industries in the United States and internationally.

• IDEXX's continued investment in innovative diagnostic instruments like the IDEXX inVue Dx and IDEXX Cancer Dx is expected to drive future revenue growth through increased adoption and placement across veterinary practices.
  
• Expansion of IDEXX's international market presence, specifically with sustained double-digit CAG Diagnostic recurring revenue growth and high placement rates in Europe and Asia-Pacific, is likely to boost overall company revenue in the coming years.
  
• The company's focus on expanding its software and digital platforms, such as the Vello engagement app and cloud-native practice management systems, is anticipated to enhance customer retention and drive recurring revenue, positively impacting earnings.
  
• IDEXX's strategic extension and expansion of major customer agreements in its Reference Lab business are projected to lead to long-term incremental volume growth, benefiting revenue and potentially operating margins.
  
• A robust approach to share repurchase, with $1.5 billion allocated for buybacks in 2025, is expected to enhance earnings per share (EPS) by reducing the share count, thereby providing additional value to shareholders.

IDEXX Laboratories Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming IDEXX Laboratories's revenue will grow by 7.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.8% today to 24.9% in 3 years time.
• Analysts expect earnings to reach $1.2 billion (and earnings per share of $15.18) by about March 2028, up from $887.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.1x on those 2028 earnings, up from 38.4x today. This future PE is greater than the current PE for the US Medical Equipment industry at 28.7x.
• Analysts expect the number of shares outstanding to decline by 1.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.82%, as per the Simply Wall St company report.

IDEXX Laboratories Future Earnings Per Share Growth

Risks

• Foreign exchange rates are expected to have a 2% negative impact on full-year revenue growth, which could affect both revenue and profit margins.
  
• Operating expenses increased by 10% in Q4, driven by R&D spending and innovation initiatives, which could pressure net margins if revenue growth does not keep pace.
  
• The ongoing litigation expense accrual has negatively impacted EPS during 2024 and could continue to pose a financial risk if further expenses arise, affecting net earnings.
  
• The decline in U.S. same-store clinical visit growth levels could constrain future revenue and profit growth, especially if consumer sentiment and macroeconomic conditions don't improve.
  
• Projected interest expenses of $42 million in 2025 due to increased share buybacks may impact net earnings depending on how the share repurchase plan influences shareholder value.

Valuation

• The analysts have a consensus price target of $499.7 for IDEXX Laboratories based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $566.0, and the most bearish reporting a price target of just $385.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.8 billion, earnings will come to $1.2 billion, and it would be trading on a PE ratio of 39.1x, assuming you use a discount rate of 6.8%.
• Given the current share price of $419.52, the analyst price target of $499.7 is 16.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.