IDEXX's IDXX strong execution of strategic priorities are a key growth factor. Enhancing global commercial capability will sustain CAG Diagnostics’ recurring revenue growth. Yet, currency impacts and uncertain macroeconomic conditions are worrisome for the company. The stock carries a Zacks Rank #3 (Hold).

Factors Driving IDEXX's Growth

IDEXX’s focus on innovation in Companion Animal Group (CAG) has resulted in a highly compelling portfolio of products and services. Diagnostics has remained one of the fastest-growing areas of the veterinary clinic since the determination of a patient's health status and the best treatment path often requires testing. IDEXX largely provides advanced diagnostic capabilities that meet veterinarians’ diverse needs through a variety of modalities, including in-clinic diagnostic solutions and outside reference laboratory services. These diagnostic capabilities generate a mix of recurring and non-recurring revenues for IDEXX.

Over the past few quarters, CAG Diagnostics’ recurring revenue growth has consistently remained above sector growth levels. In the third quarter of 2024, CAG Diagnostics’ recurring revenues increased 7% organically, supported by an average global net price improvement of approximately 5%, with U.S. net price realization of approximately 4%. Also, recurring revenue growth was driven by 10% international organic gains.

IDEXX is focused on growing its global commercial capability to sustain strong CAG Diagnostics recurring revenue growth. In the third quarter, IDEXX VetLab consumable’s organic revenue growth was driven by robust double-digit growth in international regions. Additionally, global rapid assay revenues expanded 6% organically, reflecting solid global gains from net price realization and positive equivalent shipping days effect. Global lab revenues increased 2% organically, reflecting solid growth in international regions. The company's Water segment revenues increased 13% organically in the third quarter, aided by strong performance in Europe.

The huge demand for medical services that clients see is what motivates IDEXX to develop its software solutions. IDEXX’s cloud-based products, including ezyVet, Animana, Cornerstone, IDEXX NEO, DVMAX PIMS (practice information management systems) and Web PACS (picture archiving and communication system imaging software) continue to be in high demand in response to this trend.

IDEXX Laboratories, Inc. Price

IDEXX Laboratories, Inc. price | IDEXX Laboratories, Inc. Quote

The company’s software solutions are leading to innovation-driven growth by improving clinic workflows and supporting greater utilization of diagnostics. In the third quarter, the company experienced high double-digit growth in cloud-based product placements, which once again comprised more than 95% of total software placements.

Year to date, shares of IDXX dropped 19.9% against the industry’s 6.4% growth. However, as the company continues to experience increased demand for advanced diagnostic capabilities, it might help the CAG business to gain further momentum. Added to this, global expansion and focus on improving clinic workflows are expected to help the stock get back to an uptrend in the coming days.

Concerning Factors for IDXX

In recent times, U.S. clinical visit growth levels have been constrained by persistent staffing challenges at veterinary clinics and the cumulative impacts of broader macroeconomic challenges on consumers. Meanwhile, challenges in the Asia-Pacific, including the impacts of reduced swine testing in China and lower health screening revenues, have restricted the overall organic growth of the Livestock, poultry and dairy business. In the third quarter, LPD revenues decreased due to lower Asia’s wine testing and herd health screening revenues.

Global macroeconomic conditions, including growing geopolitical complexities, supply chain disruptions leading to unit cost increases of raw materials, shortages of healthcare staff, fluctuations in foreign currency exchange rates and volatility in capital markets, could continue to affect IDEXX’s results of operations.  These challenges have adversely impacted the company’s supply chain operations globally. With sustained inflationary pressure in the future, IDEXX may struggle to keep its cost of revenues and operating expenses in check. In the third quarter of 2024, general and administrative as well as sales and marketing expenses rose 3.2% and 7.8%, respectively.

Further, a majority of IDEXX's consolidated revenues are from product sales in international markets, with approximately 21% of total revenues in the first half of 2024 derived from products manufactured in the United States and sold internationally in local currencies. The strengthening of the U.S. dollar has negatively impacted the company’s revenues from these international transactions.

Key Picks

Some better-ranked stocks in the broader medical space are Penumbra PEN, Haemonetics HAE and Phibro Animal Health PAHC, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Penumbra shares have risen 7.5% in the past year. Estimates for the company’s 2024 earnings per share have jumped 0.7% to $2.81 in the past 30 days. PEN’s earnings beat estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 10.54%. In the last reported quarter, it posted an earnings surprise of 23.19%.

Estimates for Haemonetics’ fiscal 2025 earnings per share have jumped 0.4% to $4.59 in the past 30 days. Shares of the company have decreased 3.1% in the past year against the industry’s growth of 21.1%. HAE’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 2.82%. In the last reported quarter, it delivered an earnings surprise of 2.75%.

Estimates for Phibro Animal Health’s fiscal 2025 earnings per share have increased 2.5% to $1.61 in the past 30 days. Shares of the company have surged 106.1% in the past year compared with the industry’s 21% rise. PAHC’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 25.47%. In the last reported quarter, it delivered an earnings surprise of 52.17%.

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