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Here's Why You Should Hold on to IDEXX (IDXX) Stock for Now

Zacks Equity Research

IDEXX Laboratories, Inc. IDXX has been gaining investors’ confidence on consistently favorable performance. Over the past year, the company’s shares have outperformed its industry. The stock has gained 25% against the industry’s 2.4% decline. Also, the company has outperformed the S&P 500’s 5.8% growth during the same period.

The renowned pet healthcare provider has a market cap of $24.3 billion. The company’s third-quarter projected growth rate looks impressive at 13.9%. It is expected to scale new highs in the near term. IDEXX has average positive earnings surprise of 8.2% for the trailing four quarters.

With solid prospects, the Zacks Rank #3 (Hold) company is worth the wait for now.

 


What Makes the Stock an Attractive Pick?

Robust Segmental Growth: We are upbeat about the company’s performance, which again exhibited robust growth in the second quarter of 2019 in its core operational metrics for the Companion Animal Group (“CAG”) arm on strong international sales. We expect IDEXX to sustain the positive momentum on growth in new and competitive Catalysts placements in international markets, thus supporting robust economic value index (“EVI”) gains globally. Diagnostic imaging business growth also buoys optimism.

Product Expansions to add Value: The company is upbeat about growth of SediVue and Symmetric dimethylarginine (SDMA). The expansion of 4Dx Plus specialty and first-generation products is also expected to sustain the ongoing growth momentum. Market is also optimistic about the recent approval for SDMA-based chronic kidney disease (CKD) staging guidelines by the International Renal Interest Society (IRIS). This is expected to revolutionize veterinary medicine and patient care in future.

Raised Guidance Buoys Optimism: Banking on strong second-quarter performance, IDEXX recently raised its 2019 adjusted earnings per share guidance to $4.82-$4.92 (from the previously mentioned $4.76-$4.88). The Zacks Consensus Estimate for earnings of $4.86 remains within the company’s projected range. This indicates that IDEXX will likely be able to maintain the ongoing bullish momentum for the rest of the year.

Downsides

Foreign Exchange Impact: A major portion of IDEXX’s consolidated revenues has been derived from the sale of products in the international markets in 2018. Per management, foreign exchange fluctuations are likely to affect revenues derived in currencies other than the U.S. dollar. It is also likely to affect profits from products manufactured in the United States and sold internationally.

Stretched Valuation: While IDEXX’s share price outperformed the broader market over the six months, its valuation looks stretched when compared with its industry in terms of price-to-earnings ratio (P/E - F12M). The stock currently trades at a P/E (F12M) ratio of 52.1 compared with 31.6 for the industry. Even when compared to the market at large, the stock looks overvalued, as the ratio for the S&P 500 is 17.1. We expect the valuation to be stretched for some time due to management’s consistent efforts toward building a solid strategy to boost its companion animal business. This is likely to affect the stock in the upcoming quarter.

Which Way Are Estimates Heading?

The estimate revision trend of the company for 2019 is impressive. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved up 0.8% to $4.86.

The Zacks Consensus Estimate for its 2019 revenues is pegged at $2.4 billion, suggesting an 8.2% increase from the year-ago reported number.

Stocks to Consider

Some better-ranked stocks in the broader medical space are Owens & Minor, Inc OMI, GW Pharmaceuticals plc GWPH and Medtronic plc MDT.

Owens & Minor’s third-quarter 2019 earnings growth rate is estimated at 300%. The stock sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

GW Pharmaceuticals, with a Zacks Rank #2 (Buy) at present, has an estimated earnings growth rate of 70.2% for the third quarter of 2019.

Medtronic’s long-term earnings growth rate is projected at 7.3%. The stock currently carries a Zacks Rank of 2.

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