EUR 850.00 For Business Accounts Only

Morningstar | IDXX Updated Forecasts and Estimates from 01 Nov 2018

As is typical for this company, Idexx posted another strong quarter of double-digit organic revenue growth fueled by the companion animal business. Year to date, the firm’s performance has lined up closely to our full-year projections, and we’re holding steady on our fair value estimate. Narrow-moat Idexx consistently outpaces market growth in animal healthcare thanks to its comprehensive portfolio, multiple modalities of diagnostic testing, and high level of customer service. This dynamic was underscored by the high proportion of Idexx’s Catalyst instruments—57%--into new and competitive accounts (the proportion is even higher in the North America segment). Now that Zoetis has acquired key diagnostic rival Abaxis, we can no longer keep tabs on how well its instrument placements are going. Nonetheless, we speculate the process of being integrated into Zoetis may have caused some distraction for the Abaxis commercial organization, which has allowed Idexx to press its advantage. Expansion of the installed base of instruments remains a critical driver for the benchtop diagnostic business, as the larger base translates into a recurring revenue stream of higher-margin consumables. In the third quarter, Idexx saw its VetLab consumables grow 19% organically.

While we see little in this quarter to change our view of the Idexx’s long-term prospects, shares have pulled back as management trimmed the high side of its outlook for the full year. We haven’t made any material changes to our assumptions, and management’s revisions have lowered the range of expectations, such that our estimates are now on the high side of that range. However, we recognize that Idexx shares have been trading at lofty levels, partly on expectations of a potential take-out, from our perspective. Even with this slight pullback, Idexx shares remain substantially above our intrinsic value.