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Here's Why You Should Hold Onto IDEXX (IDXX) Stock for Now

Zacks Equity Research

IDEXX Laboratories, Inc.’s IDXX Companion Animal Group (CAG) segment has been consistently performing well.

In the past year, the company’s shares have outperformed the industry. The stock has rallied 15.2% against the industry’s 3.9% fall.

This leading manufacturer and distributor of companion animal veterinary products and services has a market cap of $24.06 billion. The solid prospects make this Zacks Rank #3 (Hold) stock worth holding on to for now.

Strong International Performance: International revenues in the second quarter of 2019 were up 9% organically, driven by 11% organic gains in CAG Diagnostics recurring revenues. International reference lab growth was mid-single digits during the quarter. In the second quarter, the company placed 761 catalysts at new and competitive accounts in international regions, showing a 39% year-over-year increase.

CAG Continues to Perform Well:  In the second quarter, U.S. CAG Diagnostic recurring revenues increased 11% organically, thanks to continued double-digit growth in reference lab and consumables as well as high single-digit growth in rapid assay sales. During the quarter, global results of this segment were driven by 13% organic growth in IDEXX VetLab consumables, consistent strong double-digit gains in U.S. reference laboratory diagnostic and consulting services revenues, and 9% organic revenue growth in rapid assay products revenues.

Attractive Returns to Shareholders: IDEXX exited the second quarter of 2019 with cash and cash equivalents of $110.8 million. Year-to-date net cash provided by operating activities was $171.5 million compared with $153.7 million a year ago. This indicates promising returns for shareholders.

Downsides

The following are some of the factors marring the company’s growth:

Impact of Third-Party Distribution: The instrument consumables and rapid assay products in the company’s CAG segment are sold domestically and in certain other geographies by third-party distributors, who purchase products from IDEXX and sell them to veterinary practices, which are the end users. As a result, distributor purchasing dynamics have an impact on the company’s reported sales of these products.

Foreign Exchange Headwind: 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 derived in currencies other than the U.S. dollar and on profits from products manufactured in the United States and sold internationally.

Which Way Are Estimates Heading?

For the third quarter of 2019, the Zacks Consensus Estimate for earnings is pegged at $1.13, which indicates 7.6% growth over the year-ago quarter’s figure. The same for revenues is pegged at $597.4 million, calling for year-over-year growth of 9.5%.

For 2019, the Zacks Consensus Estimate for earnings is pegged at $4.86, suggesting 14.1% year-over-year growth. The same for revenues is pegged at $2.40 billion, suggesting 8.2% rise from the prior-year number.

Key Picks

A few better-ranked stocks in the broader medical space are Medtronic MDT, Baxter BAX and Abbott Laboratories ABT. Each of these companies carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy)  stocks here.

Medtronic’s long-term earnings growth rate is expected at 7.13%.

Baxter’s long-term earnings growth rate is projected at 12.8%.

Abbott’s long-term earnings growth rate is expected to be 10.9%.

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