On Dec 7 2015, we issued an updated research report on IDEXX Laboratories, Inc. IDXX.
This Zacks Rank #4 (Sell) company ended the third quarter of 2015 on a mixed note, with its bottom line exceeding the Zacks Consensus Estimate, while the top line failed to meet the same. Severe foreign currency headwind hampered IDEXX’s overall performance in the quarter.
Per management, foreign exchange impact, owing to the significant strengthening of the U.S. dollar, will continue to impact IDEXX’s financial performance in 2016 as well. In view of this, IDEXX has reduced its financial outlook for full year 2016.
Currently, IDEXX expects foreign exchange fluctuations to reduce its 2016 revenue growth by 1%, operating margin by 150 bps and EPS by 4 cents. According to management, this currency headwind will also contribute to an increase in the company’s effective tax rate to approximately 31% in 2016.
Apart from currency fluctuations, intense competition and high dependence on third-party distributors remain as overhangs for the company.
However, IDEXX continues to demonstrate solid growth worldwide. In the international market, although the company's sales declined 2.5% year over year to $154.3 million, the company registered 13% growth at constant exchange rate or CER driven by strong CAG growth, including the benefits of recent acquisitions.
The company witnessed strong international placements of Catalyst and Hematology analyzers during the reported quarter, which continued to deliver record numbers on account of highly successful launches in several Asian markets.
Currently, IDEXX is on track to accelerate CAG Diagnostics’ recurring revenue growth in the coming quarters. This is because the company continues to be productive in its all-direct sales strategy in the U.S. and its momentum overseas.
Moreover, supported by a strong cash position, the company remains focused on delivering incremental returns to investors, thereby leveraging its earnings power.
Key Picks from the Sector
Better-ranked players from the medical instrument sector include Masimo Corp. MASI, Natus Medical Inc. BABY and Steris Plc STE. All the three stocks hold a Zacks Rank #1 (Strong Buy).
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