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1 Growth Driver Idexx Shareholders Should be Watching

By Brian Withers and Brian Feroldi - Apr 14, 2021 at 7:40AM

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The potential is staggering.

IDEXX Laboratories, Inc. (IDXX 2.20%) stock has been a coronavirus winner, climbing over 90% since January 2020 and soundly beating the S&P500. But investors are wondering what's next for this animal lab test diagnostics specialist. On a Motley Fool Live episode recorded on March 17, Fool contributors Brian Feroldi and Brian Withers discuss its latest quarter and what could drive sustained growth in the future.

Brian Feroldi: We're talking about IDEXX labs, ticker symbol I-D-E-X-X. IDEXX has three primary businesses, although two of them are almost irrelevant because the one business but we really like. It has a water business that's basically flat growing. It has a livestock division that is sort of an OK business, and then it has a Companion Animal Group business, which is a diagnostic tools for veterinary offices and labs, and that business is awesome. In the fourth quarter, the company's total revenue grew 19 percent, that's a really strong growth rate given how dominant IDEXX is in its space.

In the Companion Animal Group, which is again the veterinary lab testing. The recurring revenue from that business grew 23 percent. This is a razor and blade business. So really strong results from the blade business. The instrument business, that revenue fell 10 percent. That's not all that surprising given how many offices were closed and [the] management team said that they expect that to bounce back. Margins rose across the board because more of their sales shifted toward those high-margin recurring consumables. So gross margin increased, operating margin increased and earnings just exploded up 93 percent, although part of that was due to a tax benefit.

What to watch moving forward, they are going to be launching a new test called ProCyte One, which is a new best-in-class blood analyzing machine that is going to be a new sales tool for the company to get out there. They think it's going to be a blockbuster hit within the veterinary community, and they said that pre-orders and reviews are way ahead of expectations, so that's going to be something to watch. The other thing to watch is do instrument sales rebounds? Do the razors get out there and sales for that pickup? That is the long-term growth driver of the blades. Management is projecting double-digit revenue growth, double-digit earnings growth, and a little bit of operational leverage here. So this is just a rock-solid business that continues to perform.

Brian Withers: So Brian, is IDEXX getting into pet insurance too?

Brian Feroldi: They're not getting into pet insurance to my knowledge, but they do think it is going to be a long-term growth driver for the business. Companies like Lemonade and Trupanion are really pushing their pet owners to try and get into the insurance business. I think it's sub-one percent of Americans have pet insurance. But if you look at some European markets, it's like 20 or 30 percent. If that gets anywhere close, the number of pet owners that will say yes to optional diagnostics tests will probably go up if they are themselves are not the ones footing the bill. So IDEXX thinks that the rise of pet insurance is a long-term growth driver for the company.

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Stocks Mentioned

IDEXX Laboratories, Inc. Stock Quote
IDEXX Laboratories, Inc.
IDXX
$358.44 (2.20%) $7.71
Trupanion Stock Quote
Trupanion
TRUP
$61.01 (1.25%) $0.75
Lemonade, Inc. Stock Quote
Lemonade, Inc.
LMND
$18.73 (2.57%) $0.47

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