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IDEXX's (IDXX) Soft LPD Sales, Margin Pressure Concern

·4-min read

IDEXX Laboratories IDXX is suffering from currency fluctuations along with high dependence on third-party distributors. A soft LPD business is an added concern. The stock carries a Zacks Rank #4 (Sell) at present.

Over the past three months, IDEXX has been underperforming its industry with respect to share price movement. The stock has lost 30.8% against a 13% decline of the industry.

In the first quarter, IDEXX’s Livestock, Poultry and Dairy (LPD) revenues declined due to comparisons to high prior-year levels and additional impacts in China related to changes in local ASF disease management approaches. Lower pork prices and changes in government requirements related to livestock infectious disease testing programs were the other deterring factors.

Further, escalating operating costs resulting in a contraction in operating margin pose concerns. Gross margin contracted 91 basis points (bps) to 59.6% on a 10.1% rise in the cost of revenues. Further, sales and marketing expenses rose 15.2%, while research and development expenses increased 6.9% in the first quarter.

The instrument consumables and rapid assay products in the company’s Companion Animal Group (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. Distributor purchasing dynamics can be affected by many factors, which may not be directly related to the underlying end-user demand for the products. Consequently, reported results may reflect fluctuations in inventory levels held by distributors and may not necessarily mirror changes in the underlying end-user demand.

IDEXX Laboratories, Inc. Price

IDEXX Laboratories, Inc. Price
IDEXX Laboratories, Inc. Price

IDEXX Laboratories, Inc. price | IDEXX Laboratories, Inc. Quote

On a positive note, IDEXX exited the first quarter of 2022 on a mixed note, with better-than-expected earnings and a revenue miss. The company registered year-over-year growth on both reported and organic basis. Strong sales drove the top line at the CAG and Water businesses. The strong growth supported by record instrument placements, resulting in year-over-year expansion of IDEXX's global premium instrument installed base, looks encouraging. The company also registered solid growth in recurring software services revenues, supported by continued gains in cloud-based software placements.

IDEXX continues to demonstrate solid growth globally. International revenues are primarily aided by a gain in CAG and Water businesses.

CAG Diagnostic recurring revenues in the reported quarter reflected 10% growth in international regions. Further, Global Reference Lab gains were strong, driven by solid same-store volume growth, including benefits from the expansion of IDEXX 360 program agreements. IDEXX VetLab consumable revenues increased 11% organically in the first quarter, supported by the expansion of the global premium instrument installed base. In terms of CAG instrument placements, the quarter reflected strong gains globally. CAG premium instrument placements increased 31% in the first quarter, reflecting 35% growth internationally. The company registered double-digit gains across Catalyst, premium hematology and SediVue platforms.

The global rollout of ProCyte One continues to support strong overall placement momentum, with 1,924 premium hematology placements in the quarter, up 101%. Further, Global Rapid Assay revenues increased 8% organically.

Key Picks

A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Medpace Holdings, Inc. MEDP and UnitedHealth Group Incorporated UNH.

AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has outperformed its industry in the past year. AMN stock has declined 1.8% compared with the industry’s 63% fall.

Medpace has a historical growth rate of 27.3%. Medpace’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%. It currently has a Zacks Rank #2 (Buy).

Medpace has outperformed its industry in the past year. MEDP has declined 20.3% against the industry’s 63% fall.

UnitedHealth has an estimated long-term growth rate of 14.8%. UnitedHealth’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%. It currently carries a Zacks Rank #2.

UnitedHealth has outperformed the industry over the past year. UNH has gained 18.2% compared with 16.2% growth of the industry in the said period.

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