A solid business model
The American company's business model is based on a diversified range of products and services, with a marked predominance of veterinary diagnostics for companion animals (Companion Animal Group segment), which account for over 90% of sales. This core segment offers integrated diagnostic solutions for veterinary clinics, including immediate diagnostic devices, external diagnostic services, practice management systems and artificial intelligence imaging systems.
Recurring sales
This integrated approach enables the company to create a coherent ecosystem, fostering customer loyalty. There are no barriers to exit for customers, and no reason to change a service that works. This gives Idexx pricing power, since customers prefer to pay a little more each year than risk leaving the ecosystem, with all the potential losses (data, time, cost, etc.) that this would entail. Idexx stands out for its ability to generate over 85% of its sales in the form of recurring revenues. This resilience is reinforced by the design of its diagnostic instruments, which are exclusively compatible with its own consumables, creating significant barriers to switching suppliers. This strategy captivates customers and fosters lasting loyalty, just like the Apple ecosystem.
The is also investing in the water quality analysis segment, which accounts for 4.6% of its sales. This sector is essential for government laboratories, water utilities and industries that have to comply with strict regulatory standards. The Livestock, Poultry and Dairy Products segment, accounting for 3.3% of sales, offers diagnostic solutions to detect infectious diseases in farm animals, while supporting animal health management and dairy product quality.
A worldwide presence
The geographical breakdown of revenues reflects the Group's strong presence on the American continent, which generates 66% of sales. Europe and Asia are the 2nd and 3rd markets respectively, contributing 20% and 9% and illustrating the company's international expansion. This global presence enables us to capture the growing demand for high-quality diagnostic solutions on an international scale.
Impressive historical growth
With an average annual growth rate (CAGR) in diluted earnings per share (EPS) of 19.5% over the last decade, the company has significantly outperformed its direct competitors in animal health, as well as the healthcare industry in general.
Potential still attractive
Despite its dominance of the US pet diagnostics market, IDEXX estimates that it has invested only 15% of its global addressable market, valued at $45 billion. This untapped opportunity promises continued growth, supported by the increasing number of pets and their longer life expectancy. These trends are driving up veterinary spending, offering Idexx significant growth potential.
A welcome earnings release
Yesterday, the company published its Q4 and full-year 2024 pre-opening results, which were very well received, with the share price gaining 11% on the day. Sales rose 6% organically, underpinned by 7% growth in recurring revenues from companion animal diagnostics (CAG). Operating profits were up 7% in actual terms and 8% on a comparable basis, thanks to solid gross margin gains that underpinned operating margin performance at the upper end of the company's guidance range. Earnings per share (EPS) for the fourth quarter amounted to USD 2.62, up 10% on a comparable basis.
For the full year 2024, IDEXX achieved organic growth of 7% in recurring revenues from AGC diagnostics, 9% growth in its installed base of premium instruments worldwide, and 11% organic growth in recurring software and digital imaging revenues, as well as in its water business.
While the 6% growth in the quarter was mainly due to the 6% growth in the CAG segment, the other two segments performed well, with 8% growth in the Water segment (9% organic) and 5% in the LPD (Livestock, Poultry and Dairy) segment (7% organic).
For the full year 2024, Idexx achieved around 18,500 placements of premium instruments, with excellent quality reflected in sustained Catalyst and ProCyte One placements. CAG instrument revenues declined organically by 12% in the fourth quarter, although solid gains from SediVue and continued expansion of ProCyte One supported results.
Encouraging outlook
In terms of outlook for 2025, Idexx expects solid organic growth in revenues and earnings, underpinned by strong execution and the benefits of new innovations. The company forecasts sales of between $4.055 billion and $4.170 billion, representing an increase of 4% to 7% on a reported basis. On an organic basis, this reflects growth of 6% to 9%, supported by organic growth of 5% to 8% in recurring AGC diagnostics revenues.
The company is also forecasting improved operating margins for the full year 2025, with a range of 31% to 31.5% on a reported basis. On a comparable basis, this reflects a year-on-year improvement of 30 to 80 basis points, net of 160 basis points in earnings.
Earnings per share for 2025 are forecast at between USD 11.74 and USD 12.24 (the S&P consensus is USD 11.9 according to the MarketScreener agenda), reflecting an increase of 8% to 12% on a comparable basis.
Idexx also expects free cash flow to be in line with its long-term objectives, with a net income to free cash flow (FCF conversion) ratio of 85% to 90%.
Although the company does not distribute dividends, it favors share buybacks, a strategy that has reduced the number of outstanding shares by almost 13% in ten years. Long-term shareholders are not complaining, since the stock has appreciated by 20.8% a year since it was listed in 2001.
Despite the stagnation of the share price over the past 3 years, following the decanting of the upward trend caused by the pandemic that artificially boosted its market, the stock could resume a new upward trend after this publication. The past three years have thus marked a well-deserved pause, while valuation ratios have eased to a reasonable level. At its peak in 2021, the stock was paying 75x earnings, compared with less than 40x today.
Idexx Laboratories closed 2024 with robust financial results and is gearing up for further growth in 2025 thanks to solid execution and a series of product innovations. The company continues to strengthen its position in the global veterinary diagnostics market, underpinned by a customer-focused innovation strategy and high-level commercial execution. The stock provides a reasonable long-term entry window at the current price, in my view, and crossing the daily MM200 would be a further technical element confirming this recovery.
