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Can CAG Growth Steadily Drive IDEXX (IDXX) in Q4 Earnings?

Zacks Equity Research

IDEXX Laboratories, Inc. IDXX is scheduled to report fourth-quarter 2018 results on Feb 1, before the opening bell. In the last reported quarter, the company delivered a positive earnings surprise of 7.14%. Notably, the stock outperformed the Zacks Consensus Estimate in each of the preceding four reported quarters, the average being 6.37%.

Let's take a look at how things are shaping up prior to this announcement.

Key Catalysts

IDEXX should continue with its momentum in the fourth quarter, courtesy of a strong global rise in Companion Animal Group (CAG) Diagnostics' revenues. In the third quarter, this upside was driven by strong consistent gains from recurring CAG revenues, high premium CAG instrument placements and consistent high growth in digital business. This trend is expected to be retained further.

In terms of 2018 outlook, IDEXX expects to deliver full-year organic growth trend in CAG Diagnostic recurring revenues to be around 13.2%, supported by steady strong growth in the United States and expanding international consumable revenues.

IDEXX Laboratories, Inc. Price and EPS Surprise

IDEXX Laboratories, Inc. Price and EPS Surprise | IDEXX Laboratories, Inc. Quote

The Zacks Consensus Estimate of $474 million for CAG Diagnostics revenues represents an 9.4% improvement over the last reported quarter.

For the fourth quarter, the company anticipates revenue growth in the range of 7-9%, net of an estimated 2% foreign exchange headwind. IDEXX hopes to retain high recurring CAG Diagnostic revenue gains in the quarter under review, aided by sustaining strong trends in the United States.

The company is projecting moderate overall organic growth in the 9-11% band related to tough prior-year comparisons in global instrument placements and expectations for lower revenues in LPD (Livestock and Poultry Diagnostics) business. In this regard, the company forecasts mid to high single-digit revenue declines in LPD organic revenues for the fourth quarter.

Other Factors

We pin considerable hopes on progress in the Water Business, lying on a growth trajectory of late on the back of encouraging test results in the United States and benefits drawn from the global go-direct initiatives. Moreover, the business witnessed 9% organic strength in the last reported quarter.

The company earlier stated that it is perfectly on track for a continued high-single digit organic revenue boost in this business through 2018. The consensus mark for Water revenues stands at $30.98 million for the yet-to-be-reported period, translating into a 7.3% improvement from the year-ago number.

IDEXX constantly expands its global footprint. It has been significantly getting advantages from bountiful opportunities in the emerging companion animal diagnostics markets. Further, management's regular share buybacks underscore the company's robust free cash flow reserve.

On the flip side, adverse foreign currency movement is a major headwind. Another concern is the company's heavy reliance on third-party distributors. The purchasing dynamics of distributors leave a significant impact on the company's sales of instrument consumables and its rapid assay products. Moreover, IDEXX has been witnessing a rise in operating expenses due to increased head count along with higher investments in portfolio development as well as expansion in the United States and internationally.

Additionally, a competitive landscape in the domestic and overseas markets weighs on IDEXX's performance. Thus, the struggle to gain market traction might be a drag, which in turn, can hurt fourth-quarter results.

Here's what the quantitative model predicts:

Our proven Zacks model clearly shows that a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has higher chances of beating estimates if it also has a positive Earnings ESP.

IDEXX has a Zacks Rank #3, which increases the predictive power of ESP. However, it has an Earnings ESP of -0.28%, which leaves surprise prediction inconclusive as the company also needs a positive ESP to be confident about a likely surprise. Thus, this combination fails to suggest an earnings beat for the stock this season.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Stocks Worth a Look

Here are a few medical stocks worth considering from the same space as these comprise the right mix of elements to exceed expectations this reporting cycle.

DexCom, Inc. DXCM has an Earnings ESP of +8.93% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

MacroGenics, Inc. MGNX has an Earnings ESP of +8.15% and a Zacks Rank of 2.

NanoString Technologies, Inc. NSTG has an Earnings ESP of +4.64% and is a Zacks #2 Ranked stock.

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