EUR 850.00 For Business Accounts Only

Morningstar | Idexx Labs Remains Top Dog in Animal Diagnostics

Idexx Laboratories has steadily increased its scale and reach in the veterinary diagnostic lab business to dig a narrow moat. It is well-positioned to benefit from two key trends. First, pet ownership continues to grow, with 68% of U.S. households owning pets in 2018 compared with 56% in 1988. Moreover, pet owners have demonstrated greater willingness to spend more on their animals, having more than tripled spending on pet products and services since 1994.Idexx offers an impressively wide range of companion animal diagnostic tests delivered in many forms. For example, it has carved out a leadership position in single-use test kits for in-office use. These premium-priced, high-margin products offer the convenience of results in less than 10 minutes; many routine and recurring diagnostics have switched from outside labs to kits. Idexx also maintains a strong position in off-site lab testing, another area that has historically seen double-digit growth. Finally, Idexx enjoys the leadership position in in-hospital analyzers. Its focus on developing and broadening its menu of tests makes Idexx more of a one-stop shop for animal hospitals. Idexx is uniquely able to cross-sell many products and services, and it has developed a strong sales organization to provide tailored solutions.Idexx's ability to sniff out opportunities to build a better mousetrap crosses over to its smaller water-testing and production-animal-testing businesses. Municipalities are often required to routinely test water supplies; Idexx offers a unique test that can detect two of the most common bacterial contaminants and is easier and faster to use than traditional testing methods. This has allowed the firm to capture more than 60% of the water market. Idexx is also a leader in livestock and poultry diagnostics, which includes tests for foot-and-mouth disease. Although these segments haven't seen growth as robust as that of the pet business, they generally offer fatter margins and we anticipate many years of growth ahead as rising incomes in emerging markets feed an appetite for animal protein. We like the innovation Idexx has demonstrated, and we expect there is more to come.