Erlangen, Germany-based Siemens Healthineers AG (SMMNY) and IDEXX Laboratories, Inc. (IDXX) in Westbrook, Maine, are two prominent players in the diagnostics and research industry. SMMNY is a medical technology company that operates through four segments--Imaging; Diagnostics; Varian; and Advanced Therapies. The company offers equipment performance management, clinical education, e-learning, asset management, managed departmental services, and digital health products and services. In comparison, IDXX manufactures and distributes products and provides services for the companion animal, veterinary, livestock and poultry, dairy, and water testing markets worldwide. The company also sells portable electrolytes and blood gas analyzers for the human point-of-care medical diagnostics market.

A significant increase in pet adoption and rising expenditure on the healthcare of both companion and production animals amid the high risk of air and food-borne and other infectious diseases helped the animal healthcare industry generate record profits last year. The surging demand has incentivized companies to develop new, advanced, and viable drugs, vaccines, diagnostic devices, and pet-friendly products and digitize their veterinary services.

Rising investor optimism surrounding the industry’s prospects is evident in the ProShares Pet Care ETF’s (PAWZ) 30.8% gains over the past year versus the Health Care Select Sector SPDR Fund’s (XLV) 22.3% gains. The global veterinary care market is expected to grow at a 5.4% CAGR to $114.40 billion by 2028. So, both SMMNY and IDXX are expected to benefit.

While SMMNY’s shares have gained 17.5% in price over the past three months, IDXX surged 19.3%. IDXX is a clear winner with 32.3% gains versus SMMNY’s 26.6% returns in terms of their past nine months’ performance. But which of these stocks is a better pick now? Let’s find out.

Latest Developments

On October 1, 2021, the U.S. Food and Drug Administration (FDA) gave clearance to SMMNY’s NAEOTOM Alpha, the world’s first photon-counting computed tomography (CT) scanner. The revolutionary images provided by photon-counting CTs will benefit people to deliver precise and comprehensive examinations at low radiation and contrast doses. With a novel system concept and pioneering new detector technology, this scanner ushers in the new era of CT and offers clear advantages over conventional CT detectors.

IDXX acquired ezyVet, a cloud-based practice information management system (PIMS), on June 2, 2021. With the acquisition, IDXX should expand its world-class cloud software offerings to support customers with technology solutions that raise the standard of patient care, improve practice efficiency, and enable more effective communication with pet owners.

Recent Financial Results

SMMNY’s revenues for its fiscal third quarter, ended June 30, 2021, increased 51% year-over-year to €5 billion ($5.80 billion). The company’s gross profit came in at €1.92 billion ($2.23 billion), up 50.8% from the prior-year period. SMMNY’s adjusted EBIT came in at €945 million ($1.10 billion), indicating a 103.2% rise from the prior-year period. While its net income increased 45.8% year-over-year to €395 million ($458.38 million), its EPS increased 29.6% to €0.35. As of June 30, 2021, the company had €1.24 billion ($1.44 billion) in cash and cash equivalents.

For its fiscal second quarter, ended June 30, 2021, IDXX’s revenue increased 29.6% year-over-year to $826.14 million. The company’s gross profit came in at $489.31 million, representing a 29% rise from the year-ago period. Its income from operations was $259.25 million, up 34.2% from the prior-year period. IDXX’s net income was $202.61 million, indicating a 36% rise from the year-ago period. And its EPS increased 36% year-over-year to $2.34. The company had $232.13 million in cash and cash equivalents as of June 30, 2021.

Past and Expected Financial Performance

SMMNY’s revenue and net income have grown at CAGRs of 7.7% and 9.4%, respectively, over the past three years. The company’s EPS has grown at a 6.7% CAGR over the past three years. Analysts expect SMMNY’s revenue to increase 23.3% year-over-year in the current year and 9.1% next year.

In comparison, IDXX’s revenue and net income have increased at CAGRs of 12.9% and 33.4%, respectively, over the past three years. The company’s EPS has grown at a 34.5% CAGR over the past three years. IDXX’s revenue is expected to rise 18.1% year-over-year in the current year and 11.1% next year.

Valuation

In terms of forward EV/EBITDA, IDXX is currently trading at 55.14x, which is 163.2% higher than SMMNY’s 20.95x. In terms of forward EV/Sales, SMMNY’s 4.47x compares with IDXX’s 17.59x.

Profitability

SMMNY’s trailing-12-month revenue is almost 6.5 times higher than IDXX’s However, IDXX is more profitable, with a 31.6% EBITDA margin versus SMMNY’s 20%.

Also, IDXX’s 142.6%, 24.7%, and 34.4% respective ROE, ROA, and ROTC values compare favorably with SMMNY’s 13.7%, 4.8%, and 6.7%.

POWR Ratings

While IDXX has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, SMMNY has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

IDXX has an A grade for Quality, which is consistent with its higher-than-industry profitability ratios. IDXX’s 31.6% trailing-12-month EBIT margin is 1093.4% higher than the 2.4% industry average. However, SMMNY’s D grade for Quality is in sync with its lower profit margins. SMMNY’s 38.5% trailing-12-month gross profit margin is 29.9% lower than the 54.9% industry average. SMMNY has a B grade for Value, which is consistent with its lower-than-industry valuation ratios. SMMNY has a 4.47x forward EV/Sales, which is 34.7% lower than the 4.47x industry average. IDXX’s C grade for Value reflects its higher-than-industry valuation ratios. IDXX’s 2.98x non-GAAP forward PEG is 54.3% higher than the 1.93x industry average.

Of the 181 stocks in the C-rated Medical - Devices & Equipment industry, SMMNY is ranked #83, while IDXX is ranked #18.

Beyond what we’ve stated above, our POWR Ratings system has also rated IDXX and SMMNY for Growth, Stability, Momentum, and Sentiment.

Get all SMMNY ratings here. Also, click here to see the additional POWR Ratings for IDXX. 

The Winner

The rising demand for efficient veterinary diagnostic devices and hematology analyzers to treat animal diseases should help SMMNY and IDXX benefit substantially in the coming months. However, higher profitability makes IDXX a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Medical - Devices & Equipment industry.

Click here to checkout our Healthcare Sector Report for 2021

SMMNY shares were unchanged in after-hours trading Tuesday. Year-to-date, SMMNY has gained 36.00%, versus a 23.15% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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