Idexx Laboratories (IDXX US): Multi-Year Visibility Through Razor and Blades Business Model

Idexx Laboratories is a leading global veterinary diagnostic company, offering fully integrated multi-modality diagnostic and software solutions. With a CAGR of 9% during 2015–2020, diagnostics is the fastest growing segment of animal healthcare, which reported a CAGR of 7% during the same period. The company estimates its total addressable companion animal global diagnostics revenue (TAM) opportunity at $37 billion, driven by increasing diagnostic innovation and utilization, and strengthening pet-parent bond. Thus far, Idexx has served less than 15% of its global TAM. Companion animal diagnostics is an attractive, resilient sector, with even greater potential coming out of COVID period. In 2020, 17.8% of the U.S. clinical visits included bloodwork, up from just 11% in 2010. Idexx has a huge installed base of around 95K chemistry, hematology, and urine analyzers. The company further sees 200K additional instrument placement opportunity amid low penetration, especially in the international markets (~155K additional placement opportunity). This leads to incremental and multi-year highly profitable consumables revenue stream for the company. Management is upbeat on the company’s growth potential and raised 2021 guidance twice. In the next five years, Idexx is well-positioned for 10%+ revenue CAGR, driven by sustained high and durable companion animal diagnostic recurring revenue gains (expected revenue CAGR of 11–14%). With diagnostic recurring revenue being highly profitable, the company aims to deliver 50–100 basis points operating margin expansion, 15–20% annual EPS growth, and high ROIC in next five years.