Animal Health: Investment in innovation and expansion drives Idexx’s success. (Photo: freepik)
Most pharmaceutical and diagnostics companies focus on human health. Few have ventured into animal health, especially animal care. Idexx operates as a duopoly in animal diagnostics with the unlisted company Antech Diagnostics.
A 40 year history
Idexx Laboratories Inc was founded 40 years ago and has been led by CEO Jonathan W. Ayers for over 20 years. Ayers has contributed significantly to Idexx’s expansion and success. His strategy aims to gradually expand the product range and open up new markets. Today, Idexx covers all diagnostic tests across all stages of a pet’s life. These diagnostic tests effectively help veterinarians identify diseases and treatment options.
In addition to the animal sector, Idexx has also played an important role in water quality testing and livestock diagnostics. Although these segments are smaller, they provide the company with diversified revenue streams.
Idexx: pioneer and moat
Today Idexx is a leading provider in veterinary diagnostics. The moat is built on high intangible assets, loyal customers and high switching costs. The company continues to strengthen its market position through constant new, indispensable product innovations and a healthy financial situation.
Investors also benefit from good predictability of sales, because recurring sales support growth even in economically challenging times.
Investment in innovation and expansion drive success
While other market leaders often rest on their position, Idexx consistently focuses on innovation. The company regularly launches new products and improves existing solutions through continuous research. This means that Idexx stays well ahead of its competition. In recent years, the US company has also managed to further expand its presence in Europe and Asia.
However, dependence on the US market remains high. The recent decline in veterinary visits in the USA has slowed Idexx’s growth. The current macroeconomic challenges and a traditionally high equity valuation have resulted in a significant decline in the share price since the all-time high in 2021.
Nevertheless, Idexx was also able to record solid organic growth of 6 percent in the fourth quarter of 2024. In general, Idexx is growing in double digits. Over the past 10 years, the company has increased sales by an average of 10 percent per year, while profits even shone with an average increase of 20 percent annually.
Excellent capital allocation
Idexx maintains a healthy balance between investments and debt policies. The net debt to EBITDA ratio is typically around 1. Management strives to ensure financial stability while pursuing growth opportunities. Free cash flow is over 20 percent. This means that acquisitions are always made at reasonable prices without destroying the return on investment. With this approach, they are increasingly strengthening their competitive position.
Instead of paying dividends, Idexx prefers to buy back shares. Over the past 15 years, 30 percent of outstanding shares have been canceled.
Outlook in veterinary medicine
According to the most recent report The size of pet health has increased significantly in recent years. From 2024 to 2028, the pet medicine market is expected to grow by 8.4 percent per year. Reasons include the trend towards pets, the aging pet population, increasing care for pets and access to new therapies and medications.
Idexx therefore has excellent growth prospects in veterinary medicine. Combined with technological innovation and ongoing expansion into new markets, above-average growth appears possible for Idexx despite its size.
Idexx Conclusion: Fair rating for number 1
Quality is rarely available at bargain prices. Discounts are particularly rare. At Idexx it is currently possible to invest at fair prices. Idexx is neither a bargain nor is it with a current EV/EBITDA of 26 and a Price-earnings ratio (P/E ratio) of 35 is expensive. Growth will increase again in the next few quarters and investors will increasingly invest again. Slow periods are excellent opportunities to get quality at cheaper prices.
Disclaimer:
Not investment advice. No call to buy or sell securities.