IDXX Stock Overview
IDEXX Laboratories, Inc. develops, manufactures, and distributes products and services primarily for the companion animal veterinary, livestock and poultry, dairy, and water testing markets worldwide.
IDEXX Laboratories, Inc. Competitors
Price History & Performance
|Historical stock prices|
|Current Share Price||US$374.01|
|52 Week High||US$695.18|
|52 Week Low||US$318.50|
|1 Month Change||3.72%|
|3 Month Change||2.52%|
|1 Year Change||-44.75%|
|3 Year Change||33.12%|
|5 Year Change||143.48%|
|Change since IPO||39,464.72%|
Recent News & Updates
IDEXX Laboratories: Outstanding Business, But Valuation Is Key
IDEXX Laboratories enjoys a dominant market position in the veterinary care ecosystem. It is also establishing itself in adjacencies like livestock and water testing. The company's business has sticky, recurring revenues with strong defensibility during uncertain economic times. The IDXX stock is currently a bit expensive, but the risk-reward ratio is favorable below $320. Editor's note: Seeking Alpha is proud to welcome Soraya Capital as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to SA Premium. Click here to find out more » Thesis IDEXX Laboratories is a well-entrenched business that has spread its tentacles throughout the whole ecosystem of veterinary care while also establishing itself in adjacencies like livestock & poultry and water testing. The enterprise has sticky, recurring revenues from the sale of instruments and related consumables as well as its SaaS offerings. However, the quality of the enterprise is already reflected in the price (recent decline notwithstanding) while the business faces macro uncertainties and stiff competition. Given conservative assumptions and employing a margin of safety, I believe the IDXX stock is attractive below $320. Business overview IDEXX operates across three business segments: Companion Animal Group ("CAG"), Water and Livestock, and Poultry and Dairy ("LPD"). Companion Animal Group These include diagnostic and information management products and services for the veterinary industry. Products range from in-clinic diagnostic solutions (e.g. single-use test kits) to traditional hematology and blood/urine chemistry analyzers and related consumables. Services include outside reference laboratories (IDEXX has a worldwide network of 80 labs) but also a whole suite of on-prem and cloud-based IT solutions which provide recurring revenue. These include practice management systems like IDEXX Neo which help manage a typical veterinary practice and other offerings like VetConnect PLUS which provide a holistic view of IDEXX diagnostics, identify abnormalities using patient history, and help interpret lab results. IDEXX Neo Features (IDEXX Website) This division is responsible for ~90% of the revenue (as of FY 2021). Water Quality Products IDEXX provides a range of water testing solutions that help evaluate bottled water, recreational water, wastewater etc. for contaminants (e.g. E. coli). Customers include utilities, government labs, beverage and pharmaceutical companies. This division is responsible for ~5% of the revenue (as of FY 2021). Livestock, Poultry and Dairy These include diagnostic tests and services that help track animal health and screen against common viral infections. In addition, IDEXX's SNAP tests platform helps detect antibiotic residues and the presence of other contaminants in milk. This division is responsible for ~4% of the revenue (as of FY 2021). Other, human medical offerings include Covid-19 testing products and point-of-care analyzers used in time-critical settings like emergency rooms. Recent Results IDEXX recently released results for the 2Q results for FY22 came in a little soft. Revenue grew 4.2% YoY to $860.55 million, missing analyst expectations by $1.57 million despite 6 downward revisions in the preceding three months. Similarly, EPS of $1.58 missed expectations by $0.05 on the back of higher discrete R&D spend. Management also lowered the FY2022 revenue growth outlook from 7.5% - 10% in Q1 to 5.5% - 8% in Q2 largely due to the expected decline in clinical visits in the second half of the year, softening demand due to macroeconomic factors, and currency headwinds. The CAG business continued to exhibit strong growth along with the water business while LPD showed negative growth due to fewer African swine fever testing in China. IDEXX also announced a bolt-on acquisition of ezyVet to further bolster its practice management SaaS portfolio. Reading the latest earnings call transcript, it seems obvious that the tapering revenue growth is largely due to lower clinical visit frequency related to staffing issues at the clinics while the underlying demand is even more robust thanks to a remarkable 10% increase in the pet population in the last two years (a statistic shared in the earnings call). This implies a short-term uptick in revenues once vet clinic capacity catches up with latent demand. In addition, IDEXX continued its strong innovation track record by introducing several new offerings including: Introduction of 4Dx Plus test for detecting vector-borne diseases Expansion of fecal Dx antigen testing ability A kidney disease marker which helps manage chronic kidney disease Enhanced PCR testing service Financials When it comes to financials, I prefer to look at a set of key metrics to gauge the quality of the enterprise and the authenticity of the earnings (accounting earnings vs. actual free cash flow). IDEXX Financial Ratios 2017 2018 2019 2020 2021 TTM Return on Capital Employed 58% 64% 50% 41% 56% 59% Gross Margin 56% 56% 57% 58% 59% 59% Operating Profit Margin 21% 22% 23% 26% 29% 26% FCF margin 15% 13% 13% 20% 20% 13% Cash Conversion Ratio ((CCR)) 113% 74% 71% 93% 85% 65% Return of capital employed has historically been in the 50%+ range. In the future, I expect this to trend even higher as the share of revenue from consumables, diagnostics and SaaS offerings increases relative to equipment sales. Gross and operating margins are also high, which demonstrate an ability to pass on inflation to customers without an outsized impact on the bottom line. Cash flow conversion is also in the 70%+ range, showing that earnings are real and that the business can fund the majority of the growth internally. This is important in the context of the macroeconomic risks wherein the worst case scenario, access to capital markets may get restricted. Balance sheet Below are key metrics that I use to evaluate balance sheet strength. IDEXX Balance Sheet 2017 2018 2019 2020 2021 TTM Debt-to-Capital Ratio 104% 101% 86% 61% 60% 77% Interest Cover 12.9x 14.4x 17.8x 21.7x 31.1x 28.5x Long-Term Debt 606 601 699 936 863 768 Total Debt 1,261 1,000 1,070 1,003 1,031 1,497 The debt-to-capital ratio is a tad high but not unusual for a growth company. Given the high interest coverage ratio, IDEXX can comfortably service the debt obligations. The total debt of around $1.5 billion also compares favorably against a market cap of ~$33 billion. Along with the high return on capital, this shows that the business has the ability to return cash to shareholders while also retaining enough profits to fund future growth. In fact, IDEXX has been assiduously buying back stock all along. Here's the chart from the recent investor day presentation showing funds allocated to share repurchases: IDEXX Investor Day 2022 Peer Comps IDEXX's main publicly traded competitor is Zoetis, another excellent company that I hope to analyze in future. In addition, I've also added Elanco Animal Health (ELAN) which competes primarily in the LPD category. At its core, IDEXX is mainly a diagnostics company while Zoetis and Elanco are therapeutics companies. However, with the purchase of Abaxis in 2018, Zoetis is also trying to establish a foothold in the diagnostics space. In addition, Zoetis has also purchased ZNLabs and Ethos Diagnostic Science to develop a reference lab offering. Nevertheless, IDEXX is the clear market leader in the diagnostics space and the dominance has only grown over the years as evidenced by revenue growth exceeding industry growth. Below I compare IDEXX with its competitors on growth, profitability and valuation. Growth - 3 year Profitability ((TTM)) Valuation ((TTM)) Company Revenue EPS ROCE CCR PE - GAAP EV/EBITDA IDEXX 13.0% 18.6% 59% 65% 51.3 35.77 Zoetis 9.8% 15.9% 27% 68% 39.85 26.53 ELAN 14.8% NM 3% - NM 13.52 IDEXX has shown superior revenue and EPS growth over the past three years relative to competition while maintaining a superior return on capital and high cash conversion ratio. This points to a lucrative business model, smart capital allocation and attractive growth opportunities. Understandably, Mr. Market has rewarded the company with a higher valuation compared to peers. Valuation Most of the articles I've read on Seeking Alpha suggest that IDXX stock is too expensive at the moment. However, quality companies usually trade at rich valuations, but many make up for it through long-term earnings growth. To give an extreme example, an investor could have bought Microsoft at the top of the tech bubble in 1999 and still made a nice return by holding for the long term. The key is the quality of the franchise and the longevity of growth. So what is the fair value for the stock? Below, I examine the valuation of this stock across a range of scenarios using my proprietary DCF model. Scenario 1: Low growth, margin contraction and market share loss (Revenue growth: 6%;Margin expansion: -50 basis points) Scenario 2: Decent growth, margin constant and static market share (Revenue growth: 9%;Margin expansion: 0 basis points) Scenario 3: Strong growth, margin expansion and market share gain (Revenue growth: 12%; Margin expansion: 100 basis points) In my valuation, I'm also taking into account the value of cash, option grants, outstanding debt (including lease commitments) and capitalized R&D expenses. Below are details for a typical scenario: Valuation Present Value of FCFF in high growth phase (15 years) $14,252,494.87 Present Value of Terminal Value of Firm $27,744,256.53 Value of operating assets of the firm $41,996,751.40 Value of Cash, Marketable Securities & Non-operating assets $144,454.00 Value of Firm $42,141,205.40 Market Value of outstanding debt (incl. operating leases) $995,229.55 Market Value of Equity $41,145,975.86 Value of Equity in Options (using Black Scholes method) $395,927.87 Value of Equity in Common Stock $40,750,047.99 Value of equity per share $481.90 The table below shows the fair price across the three different scenarios corresponding to different IRRs for a 15 year period (equal to the growth period assumption).
These 4 Measures Indicate That IDEXX Laboratories (NASDAQ:IDXX) Is Using Debt Reasonably Well
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously...
IDEXX Laboratories Stock Is Very Expensive
I'd characterize the financial performance here for IDEXX Laboratories as "mixed." The top and bottom lines have grown nicely over time, though the capital structure has deteriorated. In spite of this, IDXX stock is even more expensive than when I last reviewed the name. IDEXX Laboratories shares have risen dramatically since I avoided them years ago. I'm reminded that we're not seeking "returns", we're seeking "risk adjusted returns." I’ve been in the mood to take a walk down memory lane lately, and that has prompted me to review some of the earliest articles I wrote on this platform. As I reread these I’m struck by how mind numbingly boring I was (am?). Anyway, I want to write about one of the stocks that “got away”, so I’m going to put my thoughts about IDEXX Laboratories Inc. (IDXX) to virtual ink. Way back in February 2018, I wrote a piece where I recommended investors avoid this name because it was very expensive. Right on time, the shares went on a tear, and are up about 130% against a gain of about 53% for the S&P 500 since then. I thought I’d revisit the name to try to work out whether or not it makes sense to buy. I’ll make that determination by looking at the most recent financial performance, and by looking at the stock as a thing distinct from the underlying business. Welcome to my “thesis statement” paragraph. As you may recall, I put one of these near the beginning of each of my articles because reading 1,500-2,000 of my words can be a trial for some people. You’re welcome. I am of the view that IDEXX Laboratories is a bad investment at the moment. Although the company’s financial performance is (mostly) good, the shares are very expensive, and are priced for near perfection. This is never a great sign in my view. You may complain that this is the exact same advice I gave years ago, and had you followed it, you would have missed out on a great return. You would be right to remind me that even then I was admitting that the company’s segments (Animal Companion and Veterinary etc.) had great tailwinds behind them, and that this was a great company that I couldn’t “pull the trigger” on. That’s all true, but consider the following. First, ask yourself if the next four years of market returns will resemble the past? If so, then maybe the optimism fueled crowd may continue to drive these shares higher. Also, we’re not seeking “returns”, we’re seeking “risk adjusted returns”, and if the valuation is stretched, sooner or later chickens come home to roost. That’s a bad hair day when it happens. In a world where you can buy many, many other profitable stocks at far more reasonable valuations, I would avoid the shares of this great business until they drop to a more reasonable level. IDEXX Laboratories Financial Snapshot Since I last wrote about it, this company has had a spectacularly good financial result in many ways. Specifically, relative to when I last reviewed the name, annual revenue is up by about 63%, and net income has climbed an eye watering 182%. I think this gives some sense for why the shares have done so very well from early 2018. Things look slightly less good when we compare the first six months of 2022 with the same period a year ago. Although revenue in 2022 is about 5.8% higher than it was this time last year, net income is about 20% lower. All expenses are higher in 2022 than they were in 2021, but the 117% uptick in R&D expenses is the standout reason for the drop in profits. This isn’t the end of the world, but it’s noteworthy, and I think we should keep an eye on the R&D expensive going forward in order to determine whether or not we’re in a “new normal.” As troubling in my estimation is the deterioration of the capital structure. Specifically, long term debt and the line of credit are about 37% higher than in 2018. Borrowings are currently just under $1.4 billion. If I were an investor here, I would have preferred they pay down some of this debt over the past six months, rather than buy back $554 million worth of stock. I would prefer that unless management repurchased these shares at a nice discount. Idexx Financials (Idexx investor relations) The Stock That question of whether or not management spent half a billion dollars buying back shares at a reasonable price is of critical importance, and highlights the fact that the business and the stock are distinct things, though are connected, obviously. They’re connected, but I think the stock is often a very poor proxy for the business that it supposedly represents. A business buys a number of inputs, adds value to them, and then sells the results at a profit. The stock, on the other hand, is a traded instrument that reflects the crowd's aggregate belief about the long-term prospects for the company, and may also be influenced by management using owner’s capital to buy owner’s shares. Given stock volatility, it seems that the crowd is capricious and changes its views about the company relatively frequently, which is what drives the share price up and down. Added to that is the volatility induced by the crowd's views about “the market” in general. "Stocks" become more or less attractive, and the shares of a given company get taken along for the ride. This leads me to a significant point that I want to drive home: the only way to consistently make money in stocks is to spot the discrepancies between the current assumptions embedded in price and subsequent returns. So, if our approach involves investing based on something we read in The Journal, we’re going to do badly over time. This is because by the time the information hits our screens, it’s been priced into the stock price. If we want to make money, we need to spot discrepancies. In particular, if we want to go long a stock, we should only ever do so when the crowd is feeling pessimistic. That’s my point in a nutshell. It's typically the case that the lower the price paid for a given stock, the greater the investor's future returns. In order to buy at these cheap prices, you need to buy when the crowd is feeling particularly down in the dumps about a given name. As my regulars know, I measure the relative cheapness of a stock in a few ways ranging from the simple to the more complex. On the simple side, I like to look at the ratio of price to some measure of economic value, like earnings, sales, free cash, and the like. Once again, cheaper wins. Given all of the above, I don’t think we should be surprised by the fact that I blanched at this stock years ago when it was trading at a price to free cash flow ratio of about 52.5 times. Fast forward several years and things look even more expensive, per the following: IDXX data by YCharts In addition to looking at simple ratios, I want to try to understand what the market is currently "assuming" about the future of a given company. If you read me regularly, you know that I rely on the work of Professor Stephen Penman and his book "Accounting for Value" for this. In this book, Penman walks investors through how they can apply the magic of high school algebra to a standard finance formula in order to work out what the market is "thinking" about a given company's future growth. This involves isolating the "g" (growth) variable in a fairly standard finance formula. Additionally, I’ve heard the complaint that Penman’s stuff may not be the most accessible book ever written. So, if you want an alternative to Penman, you could try Mauboussin and Rappaport. These two have recently updated their classic “Expectations Investing”, and it is excellent in my estimation.
|IDXX||US Medical Equipment||US Market|
Return vs Industry: IDXX underperformed the US Medical Equipment industry which returned -20.7% over the past year.
Return vs Market: IDXX underperformed the US Market which returned -8.9% over the past year.
|IDXX Average Weekly Movement||5.7%|
|Medical Equipment Industry Average Movement||9.4%|
|Market Average Movement||7.6%|
|10% most volatile stocks in US Market||17.0%|
|10% least volatile stocks in US Market||3.1%|
Stable Share Price: IDXX is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 6% a week.
Volatility Over Time: IDXX's weekly volatility (6%) has been stable over the past year.
About the Company
IDEXX Laboratories, Inc. develops, manufactures, and distributes products and services primarily for the companion animal veterinary, livestock and poultry, dairy, and water testing markets worldwide. The company operates through CAG; Water Quality Products; LPD; and Other segments. It provides point-of-care veterinary diagnostic products, including instruments, consumables, and rapid assay test kits; veterinary reference laboratory diagnostic and consulting services; practice management and diagnostic imaging systems and services for veterinarians; and health monitoring, biological materials testing, and laboratory animal diagnostic instruments and services for biomedical research community.
IDEXX Laboratories, Inc. Fundamentals Summary
|IDXX fundamental statistics|
Is IDXX overvalued?See Fair Value and valuation analysis
Earnings & Revenue
|IDXX income statement (TTM)|
|Cost of Revenue||US$1.37b|
Last Reported Earnings
Jun 30, 2022
Next Earnings Date
Nov 01, 2022
|Earnings per share (EPS)||7.98|
|Net Profit Margin||20.07%|
How did IDXX perform over the long term?See historical performance and comparison