IDXX - IDEXX: Strong Recurring Revenues From Consumables Software But Overvalued (Rating Downgrade)

2024-04-08 04:29:30 ET

Summary

• IDEXX's business model relies on selling diagnostic equipment, consumables, veterinary software, and diagnostic imaging to generate recurring revenue.
• The company has experienced double-digit growth in consumables, software, and diagnostic imaging, driving their overall revenue growth.
• While IDEXX's business is strong, the stock price is considered overvalued, leading to a 'Hold' rating with a one-year price target of $420 per share.

In my initiation report published in July 2023, I discussed IDEXX’s ( IDXX ) recession resistant business model and their overpriced valuation. Since then, their stock price has underperformed compared to S&P 500 Index return. They finished FY23 with 8.8% organic revenue growth and 25% operating profit growth, maintaining strong growth momentum from both volume and net pricing. The double-digit growth in consumables, software, services, and diagnostic imaging drives the company’s recurring revenue growth. However, I still consider the stock price is overvalued, and I am downgrading to ‘Sell’ rating with a one-year price target of $420 per share.

Consumables and Veterinary Software and Diagnostic Imaging

IDEXX’s business model is quite simple: sell diagnostic equipment to veterinary professional, then sell rapid assay kits and consumables to generate recurring revenue. In addition, IDEXX offers veterinary software and diagnostic imaging system to help veterinary clinics manage their patient electronic health records, scheduling, client communication, billing, and inventory etc. The software is cloud-based SaaS products, generating monthly subscription revenue for IDEXX. IDEXX ImageVue DR50 and the IDEXX ImageVue DR30 provide radiographic images in digital form, replacing the traditional x-ray films, and IDEXX also sells related software to support their diagnostic imaging systems....

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