IDEXX Laboratories, Inc. IDXX is well-poised to grow in the upcoming quarters due to the performance of its CAG (Companion Animal Group) Diagnostics business. The consistent growth in international CAG diagnostic recurring revenues is highly promising. Robust demand for its cloud-based products further bodes optimism for the stock. However, unfavorable solvency and adverse currency fluctuations pose risks for IDEXX’s operations.

In the past year, this Zacks Rank #3 (Hold) stock has dropped 21% compared with the industry’s8.3% fall and the S&P 500 composite’s 9.4% growth.

The renowned medical device company has a market capitalization of $33.8 billion. IDEXX’s earnings surpassed estimates in three of the trailing four quarters and missed on one occasion, delivering an average surprise of 0.8%.

Let’s delve deeper.

IDXX’s Tailwinds

CAG Continues to Perform Well: Over the past few quarters, CAG Diagnostics’ recurring revenue growth has consistently remained above sector growth levels. The company’s long-term success in the CAG recurring diagnostic products and services depends upon growing volumes of existing customers by increasing their utilization of existing and new test offerings, acquiring new customers, maintaining high customer loyalty and retention and realizing modest annual price increases.

In the fourth quarter of 2024, worldwide CAG Diagnostics’ recurring revenues increased 4% organically, supported by an average global net price improvement of approximately 4-4.5%, with the U.S. net price realization of approximately 3.5%. Also, recurring revenue growth was driven by 12% international organic gains. Further, the company generated substantial revenues and margins from selling consumables used in IDEXX VetLab instruments.

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Strong Global Performance: IDEXX is focused on growing its global commercial capability to sustain strong CAG Diagnostics recurring revenue growth. Through strategic investments, the company continues to strengthen its future growth prospects by delivering high-touch commercial engagement in the fastest-growing regions while maintaining strong business performance. This expanded global commercial capability is yielding strong results overseas, with notable 12% organic growth in international CAG diagnostic recurring revenues in the fourth quarter of 2024.

The company is particularly witnessing strong global gains in consumable revenues, banking on strong gains across its Catalyst, Premium Hematology and SediVue platforms. In 2024, consumable gains were supported by a 9% increase in the global premium instrument installed base. The company's Water segment revenues increased 9% organically in the fourth quarter, aided by strong performance in Europe.

Cloud-Based Software in Trend: 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, 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. In the fourth quarter, the company experienced double-digit growth in cloud-based product placements, reinforcing IDEXX’s position as a leader in vertical SaaS offerings tailored for veterinary needs.

Meanwhile, the newly introduced Vello software solution’s growing acceptance is encouraging. IDEXX placed a record number of cloud-native PIMS in 2024, expanding the installed base by 20% year over year. IDEXX Web PACS, a cloud-native imaging workflow engine, also experienced double-digit subscriber growth, demonstrating its relevance in addressing key pain points such as dental imaging workflows. Furthermore, the company is building on the robust features of its customer engagement solution by integrating Greenline Pet, a digital platform acquired earlier in the year. 

Concerns for IDXX

Solvency Position: IDEXX closed 2024 with cash and cash equivalents of $288.3 million and a corresponding short-term debt of $418.0 million. Meanwhile, long-term debt (net of the current portion) dropped 27.8% year over year to $449.8 million but remained higher than the cash levels.

Foreign Exchange Headwind: A majority of IDEXX's consolidated revenues are from product sales in international markets, with approximately 35% of total revenues in 2024 derived from products manufactured in the United States and sold internationally in local currencies. The strengthening of the U.S. dollar has negatively affected the company’s revenues from these international transactions. In 2024, currency fluctuations had a limited impact on revenue growth, leading to a $5 million impact on operating profits and a decrease of 5 cents in EPS, net of $6 million in hedge gains.

IDXX Stock Estimate Trend

The Zacks Consensus Estimate for IDEXX’s 2025 EPS has remained constant at $11.93 in the past 30 days.

The Zacks Consensus Estimate for the company’s 2025 revenues is pegged at $4.11 billion. This suggests a 5.3% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Veracyte VCYT, Cardinal Health CAH and Boston Scientific BSX.

Veracyte has an earnings yield of 3.2% against the industry’s -3.1% yield. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 515.9%. Its shares have risen 44.1% against the industry’s 8.3% fall in the past year.

VCYT carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cardinal Health, carrying a Zacks Rank #2 at present, has an earnings yield of 6.2% compared with the industry’s 6%. Shares of the company have risen 15.3% against the industry’s 5% growth. CAH’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 9.6%.

Boston Scientific, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 13.3%. Shares of the company have surged 45.9% compared with the industry’s 8.1% growth. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 8.3%.

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This article originally published on Zacks Investment Research (zacks.com).

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