IDEXX Laboratories, Inc. (IDXX Quick QuoteIDXX ) has been gaining on solid top-line growth in the second quarter driven by strong sales at the CAG, LPD and Water businesses. Sturdy gains in CAG Diagnostics’ recurring revenues, supported by sustained strong global trends in pet healthcare, buoy optimism. However, a weak capital structure and foreign exchange fluctuation remain concerns.
Over the past six months, shares of this Zacks Rank #2 (Buy) company have outperformed the industry. Shares of the company have surged 26.9% compared with 8.5% growth of the industry and 13.9% rise of the S&P 500.
The renowned manufacturer of products and services, primarily for the companion animal veterinary, livestock and poultry, has a market cap of $57.99 billion. The company projects 19.9% growth for the next five years. The company surpassed estimates in the trailing four quarters, the average surprise being 28.16%.
Let’s delve deeper.
Factors at Play
Impressive Q2 Results: IDEXX exited the second quarter of 2021, with better-than-expected results. Solid organic-revenue growth is encouraging as well. The top line in the quarter was driven by strong sales at the CAG, LPD and Water businesses. The company witnessed sturdy gains in CAG Diagnostics’ recurring revenues, supported by sustained strong global trends in pet healthcare in the quarter under review.
The company’s performance in major geographies is also encouraging. Further, veterinary software, services and diagnostic imaging system revenues grew in the reported quarter on double-digit growth in subscription-based service revenues and strong growth in new veterinary software system placements and recurring software services. The acquisition of ezyVet also contributed to growth. The raised 2021 outlook is encouraging as well.
CAG Continues to Perform Well: IDEXX derives the lion’s share of its revenues from the CAG segment. The company registered stellar second-quarter revenue growth within CAG.
In the second quarter, CAG revenues rose 32% (up 27% organically) year over year, driven by 30% reported and 26% organic growth in global CAG Diagnostics recurring revenues. This uptick in overall CAG revenues reflects 24% organic growth in the United States and 30% organic growth in international markets. Continued strength in clinical visits and related diagnostic products and services in the reported quarter aided CAG Diagnostics’ recurring revenues.
Image Source: Zacks Investment Research
Raised Guidance: IDEXX, boosted by the ongoing business recovery and strong quarterly performance, has raised its financial outlook for 2021. The company projects revenues for the year in the range of $3,170-$3, 205 million, suggesting year-over-year growth of 17-18.5% on a reported and 14.5-16% on an organic basis. This is significantly up from the previously-provided financial outlook where revenue growth was projected at $3,105-$3,160 million.
Further, IDEXX projects full-year earnings per share in the range of $8.20-$8.36, indicating growth of 22-25% on a reported basis (up from the earlier outlook of $7.88-$8.18).
However, IDEXX derives a majority of its consolidated revenues from the sale of products in international markets. Thus, the strengthening of the rate of exchange for the U.S. dollar relative to other currencies dented the company’s revenues derived in currencies other than the U.S. dollar.
IDEXX’s weak solvency and capital structure are concerning as well. The company’s total debt was $905.1 million for the second quarter, reflecting a marginal increase from $903.7 million in the preceding quarter. This figure, however, was much higher than the year-end cash and cash equivalent of $232.1 million.
IDEXX has been witnessing a positive estimate revision trend for the current year. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 4.6% north to $8.35.
The Zacks Consensus Estimate for its third-quarter 2021 revenues is pegged at $793.3 million, suggesting 9.9% growth from the year-ago reported number.
Other Key Picks
A few other top-ranked stocks from the broader medical space are Envista Holdings Corp. (NVST Quick QuoteNVST ) , BellRing Brands, Inc. (BRBR Quick QuoteBRBR ) and Henry Schein, Inc. (HSIC Quick QuoteHSIC ) , each carrying a Zacks Rank #2. You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.
Envista Holdings has an estimated long-term earnings growth rate of 26%.
BellRing Brands has an estimated long-term earnings growth rate of 22%.
Henry Schein has a projected long-term earnings growth rate of 14%.