We came across a bullish thesis on IDEXX Laboratories, Inc. (IDXX) on Analyzing Good Businesses’ Substack by YoungHamilton. In this article, we will summarize the bulls’ thesis on IDXX. IDXX Technologies, Inc. share was trading at $472.41 as of Oct 7^th. IDXX’s trailing and forward P/E were 46.87 and 41.84 respectively according to Yahoo Finance.

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IDEXX Laboratories is a leader in the pet diagnostics industry, focusing on the veterinary market. Their main strategy is to increase the use of diagnostics throughout a pet’s life, helping vets find diseases and suggest treatments. This approach has given IDEXX a strong position, especially in its Companion Animal Group (CAG) segment. The CAG segment is IDEXX’s largest, making up 91.6% of their revenue. It includes diagnostic tools, consumables, quick tests (SNAP tests), lab services, and software. Growth in this segment is driven by higher demand for in-clinic diagnostic tools and consumables. Key products are chemistry, blood, and urine analyzers, with a focus on adding new tests to existing tools over time.

The Water segment provides water testing tools for detecting coliform and E. coli, mainly for regulatory compliance generating 4.6% of revenue and having the highest margins (69% gross, 44% operating), this segment's customer retention is over 99% due to its essential nature. The Livestock, Poultry, and Dairy (LPD) segment generates 3.3% of revenue and has lower margins. It focuses on tests for diseases like Bovine Viral Diarrhea Virus and African Swine Fever for which it has struggled in China which makes a large part of the international portion of this segment.

IDEXX Laboratories (IDXX) is a case to be considered due to its competitive advantages, growing installed base, and recurring revenue. As of 2023, IDEXX has 135,000 instruments in use, generating steady revenue from consumables, with plans to increase to 330,000 instruments by 2033. IDEXX’s strategy includes expanding its test menu, like with Catalyst Dx instruments, and using its extensive lab network of over 80 labs worldwide, which contributes 38% of CAG revenue, to boost recurring income. Diagnostic use has grown from 13% in 2010 to 19% in 2023, a trend expected to continue as pets age. The adoption of IDEXX’s management software, like ezyVet and Neo, is increasing diagnostic spending by 17% among users. Despite recent challenges in vet visit growth due to weaker consumer spending and staffing shortages, IDEXX is set for long-term growth. The company expects revenue growth of 11.5%-14%, driven by price increases, diagnostic use, instrument expansion, and a recovery in visit growth.