Medical Stocks

IDEXX Laboratories Inc Valuation – June 2018 $IDXX

Company Profile (excerpt from Reuters): IDEXX Laboratories, Inc., incorporated on December 19, 1983, develops, manufactures and distributes products and provides services primarily for the companion animal veterinary, livestock and poultry, dairy and water testing markets. The Company also sells a line of portable electrolytes and blood gas analyzers for the human point-of-care medical diagnostics market. Its segments include diagnostic and information technology-based products and services for the veterinary market, which the Company refers to as the Companion Animal Group (CAG); water quality products (Water); diagnostic products and services for livestock and poultry health, which the Company refers to as Livestock, Poultry and Dairy (LPD), and Other operating segment, which combines and presents products for the human point-of-care medical diagnostics market (OPTI Medical) with its pharmaceutical product line and its out-licensing arrangements. Its primary products and services are point-of-care veterinary diagnostic products, comprising instruments, consumables and rapid assay test kits; veterinary reference laboratory diagnostic and consulting services; practice management and diagnostic imaging systems and services used by veterinarians; biological materials testing, laboratory diagnostic instruments and services used by the biomedical research community; diagnostic, health-monitoring products for livestock, poultry and dairy; products that test water for certain microbiological contaminants, and point-of-care electrolytes and blood gas analyzers used in the human point-of-care medical diagnostics market.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of IDXX – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $19,085,590,100 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.96 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 162.85% Pass
6. Moderate PEmg Ratio PEmg < 20 73.05 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 -398.98 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.96 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -22.45 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.01
MG Growth Estimate 12.48%
MG Value $100.64
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $43.62
MG Value based on 0% Growth $25.57
Market Implied Growth Rate 32.27%
Current Price $219.72
% of Intrinsic Value 218.32%

IDEXX Laboratories, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.64 in 2014 to an estimated $3.01 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 32.27% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into IDEXX Laboratories, Inc. revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 73.05, which was above the industry average of 46.81. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.18.

IDEXX Laboratories, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.18
Graham Number $0.00
PEmg 73.05
Current Ratio 0.96
PB Ratio -398.98
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $701,707,000
Total Current Liabilities $728,838,000
Long-Term Debt $609,005,000
Total Assets $1,469,492,000
Intangible Assets $242,915,000
Total Liabilities $1,518,474,000
Shares Outstanding (Diluted Average) 88,944,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.03
Dec2017 $2.94
Dec2016 $2.44
Dec2015 $2.05
Dec2014 $1.79
Dec2013 $1.74
Dec2012 $1.59
Dec2011 $1.39
Dec2010 $1.19
Dec2009 $1.01
Dec2008 $0.94
Dec2007 $0.73
Dec2006 $0.71
Dec2005 $0.58
Dec2004 $0.55
Dec2003 $0.40
Dec2002 $0.33
Dec2001 $0.27
Dec2000 $0.26
Dec1999 $0.21
Dec1998 -$0.10

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.01
Dec2017 $2.40
Dec2016 $2.06
Dec2015 $1.81
Dec2014 $1.64
Dec2013 $1.51
Dec2012 $1.33
Dec2011 $1.15
Dec2010 $0.99
Dec2009 $0.86
Dec2008 $0.76
Dec2007 $0.65
Dec2006 $0.57
Dec2005 $0.48
Dec2004 $0.41
Dec2003 $0.32
Dec2002 $0.25

Recommended Reading:

Other ModernGraham posts about the company

IDEXX Laboratories Inc Valuation – Initial Coverage $IDXX

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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