IDEXX Laboratories (IDXX - Free Report) is progressing well with segmental growth and rapid expansion of Catalyst installed base. However, foreign exchange headwinds and pressure on operating margin are likely to offset the positives to some extent.
In the past year, the company’s shares have outperformed the industry. The stock has rallied 33.7% compared with the industry’s 10.7% rise.
This $23.66-billion companion animal veterinary, livestock and poultry developer’s earnings growth is expected to be 16.5% over the next year. Also, the company has a trailing four-quarter positive earnings surprise of 10.2%, on average.
Let’s delve deeper into the factors that substantiate the company’s Zacks Rank #3 (Hold).
CAG Continues to Perform Well: The company registered stellar fourth-quarter revenue growth within CAG. For the fourth quarter, global CAG revenues were up 11% organically, driven by 11% organic gains in CAG Diagnostics recurring revenues. Within the United States, CAG Diagnostics recurring revenues increased 10.5% organically. Consistently solid U.S. gains were backed by low- to mid-teens organic growth in reference lab sales, double-digit gains in VetLab consumables and impressive gains in rapid assay revenues. In 2019, global CAG revenues grew nearly 11% and management is optimistic about targeting continued double-digit organic gains in the CAG business in 2020.
Strong International Performance: IDEXX continues to demonstrate solid growth globally. International revenues in the fourth quarter of 2019 were up 11.7% organically, aided by 10.6% organic gains in CAG Diagnostics recurring revenues. International CAG Diagnostic recurring revenues increased 12% organically in the fourth quarter, led by international Reference Lab organic revenue growth as well as mid-teens growth in international consumable revenues. The results reflected solid momentum across international markets in diagnostic test utilization and expansion of the company’s global catalyst installed base. This impressive trend is expected to continue through the rest of fiscal 2020.
Upbeat Guidance: IDEXX has raised its revenue guidance for 2020 to a band of $2.62-$2.65 billion, indicating organic and reported revenue growth of 9-10.5%. Also, the earnings projection has been raised by 12 cents to the band of $5.42-$5.58, suggesting annualized growth of 13-16% at CER. This indicates the continuation of bullish trend for the rest of 2020.
However, there are a few factors marring growth.
Foreign Exchange Headwind: Approximately majority of IDEXX’s consolidated revenues have been derived from sale of products in the international markets in 2019. Thus, the strengthening of the rate of exchange for the U.S. dollar relative to other currencies had a negative impact on the company’s revenues.
Contraction in Operating Margin: During the fourth quarter, sales and marketing expenses rose 10.2% to $105.7 million, while general and administrative expenses moved up 26.6% to $74.7 million. Additionally, research and development expenses rose 16.7% to $35.2 million. Accordingly, operating margin in the quarter contracted 190 bps to 19.1%.
Which Way Are Estimates Treading?
For the first quarter of 2020, the Zacks Consensus Estimate for earnings is pegged at $1.23, indicating a 5.1% rise from the year-ago quarter’s figure. The same for revenues is pegged at $633 million, calling for year-over-year growth of 9.9% from the prior-year quarter’s number.
The Zacks Consensus Estimate for 2020 earnings is pegged at $5.47, suggesting 11.9% year-over-year growth from the year-ago figure. The same for revenues is pegged at $2.64 billion, suggesting a 9.8% rise from the prior-year number.
Stocks Worth a Look
A few better-ranked stocks from the broader medical space are Weston Pharmaceutical Services (WST - Free Report) , Stryker (SYK - Free Report) and ResMed (RMD - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Weston Pharmaceutical Services has a projected long-term earnings growth rate of 14%.
Stryker has an expected long-term earnings growth rate of 9.9%.
ResMed has a long-term earnings growth rate of 11.9%.
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