Westbrook, Maine-based IDEXX Laboratories, Inc. (IDXX) and Elanco Animal Health Incorporated (ELAN) in Greenfield, Ind., are two prominent players in the veterinary market. IDXX manufactures and distributes products and provides services for the companion animal, veterinary, livestock and poultry, dairy, and water testing markets. It also sells portable electrolytes and blood gas analyzers for the human point-of-care medical diagnostics market. In comparison, ELAN develops and manufactures products for companion and food animals, and sells them to third-party distributors, veterinarians, farm animal producers, and dairy farmers, and provides aquaculture operations.
Rising pet adoptions amid remote lifestyles, and with it increased spending on pet food, care, entertainment, and grooming have helped the pet care industry achieve solid growth. Furthermore, the development of efficient and quick diagnostic devices, viable drugs and vaccines, and ancillary services boosted the industry’s performance.
Because the consistent demand for these products and services makes this industry recession-proof, it has been grabbing significant investor attention amid the current uncertain market conditions. The global pet care market is expected to grow at a 6.1% CAGR to $350 billion by 2027. So, both IDXX and ELAN should benefit. But while ELAN’s shares have declined 3.1% in price over the past month, IDXX has surged 3.7%. IDXX is also a clear winner with 15.2% gain over the past year versus ELAN’s 4.4% loss. But which of these stocks is a better pick now? Let’s find out.
Latest Developments
On Jan. 13, 2022, IDXX announced a series of product and service enhancements that enable veterinary practices to be more efficient while managing increasing patient volumes. IDXX’s IDEXX 4Dx Plus Test features clinical decision support on VetConnect PLUS, which provides follow-up considerations and patient-specific interpretive assistance to help veterinarians identify evidence of active infection. Its SediVue Dx Urine Sediment Analyzer now features Neural Network 6.0, its latest and most advanced algorithmic software powered by 800 million urine sediment images, which will help veterinarians determine the presence of a urinary tract infection faster. These time-saving enhancements that provide deeper and actionable insights should witness higher demand in the coming months.
On Jan. 20, 2022, ELAN’s Zorbium received approval from the U.S. Food and Drug Administration (FDA), which should help it expand its pain management offerings while addressing an unmet need for veterinary practices. Zorbium is an innovative, transdermal formulation of a commonly used opioid in cats, enabling veterinarians to provide consistent, reliable pain relief to their post-op feline patients for four days without the need for repeat injections and at-home injections. This should help Zorbium expand its reach across global markets.
Recent Financial Results
IDXX’s revenue for its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, increased 11.1% year-over-year to $801.09 million. The company’s gross profit came in at $456.42 million, representing an 11.5% year-over-year improvement. Its income from operations was $199.19 million for the quarter, indicating a 7.6% rise from the prior-year period. Its net income came in at $162.77 million, down 7% from the year-ago period. And its EPS decreased 6% year-over-year to $1.89. The company had $144.45 million in cash and cash equivalents as of Dec. 31, 2021.
For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, ELAN’s revenue decreased 2.4% year-over-year to $1.11 billion. The company’s non-GAAP pre-tax income came in at $123 million, indicating an 80.9% year-over-year improvement. While its non-GAAP net income increased 84.2% year-over-year to $105 million, its non-GAAP EPS grew 75% to $0.21. The company had $638 million in cash and cash equivalents as of Dec. 31, 2021.
Past and Expected Financial Performance
IDXX’s EBIT and levered free cash flow have increased at CAGRs of 23.8% and 26.8%, respectively, over the past three years.
IDXX’s EPS is expected to grow 10% year-over-year in its fiscal 2022, ending Dec. 31, 2022, and 15.1% in its fiscal 2023. Its revenue is expected to grow 10.3% year-over-year in fiscal 2022 and 11.2% in fiscal 2023. Analysts expect the company’s EPS to grow at an 11% rate per annum over the next five years.
ELAN’s EBIT and levered free cash flow have increased at CAGRs of 2% and 19.7%, respectively, over the past three years.
Analysts expect ELAN’s EPS to improve 15.2% year-over-year in its fiscal 2022, ending Dec. 31, 2022, and 22.3% in fiscal 2023. Its revenue is expected to grow 0.3% year-over-year in fiscal 2022 and 3.7% in fiscal 2023. Analysts expect the company’s EPS to grow at a 13% rate per annum over the next five years.
Valuation
In terms of non-GAAP forward PEG, IDXX is currently trading at 2.91x, which is 107.9% higher than ELAN’s 1.40x. In terms of forward EV/Sales, ELAN’s 3.86x compares with IDXX’s 13.10x.
Profitability
ELAN’s trailing-12-month revenue is almost 1.5 times IDXX’s. However, IDXX is more profitable, with a 23.2% net income margin versus ELAN’s negative value.
Furthermore, IDXX’s 24.6% and 34.7% respective ROA and ROTC compare with ELAN’s 1.4% and 1.6%.
POWR Ratings
While IDXX has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, ELAN has an overall C grade, which equates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both IDXX and ELAN have a B grade for Sentiment, consistent with analysts’ expectations of a solid increase in earnings. IDXX’s EPS is expected to grow 10% year-over-year to $9.46 for its fiscal 2022, ending Dec.31, 2022. The $1.21 consensus EPS estimate for ELAN’s fiscal 2022, ending Dec. 31, 2022, represents a 15.2% rise from the prior-year period.
IDXX has a B grade for Quality, which is in sync with its higher-than-industry profitability ratios. IDXX’s trailing-12-month net income margin of 23.2% is significantly higher than the industry average. ELAN’s C grade for Quality reflects its negative net income margin.
Among the 163 stocks in the Medical - Devices & Equipment industry, IDXX is ranked #21.
ELAN is ranked #45 of 175 stocks in the Medical - Pharmaceuticals industry.
Beyond what we have stated above, our POWR Ratings system has also rated IDXX and ELAN for Stability, Value, Growth, and Momentum. Get all IDXX ratings here. Also, click here to see the additional POWR Ratings for ELAN.
The Winner
The consistent demand for pet care products from an enhanced owner base should drive the performance of IDXX and SYY. However, its higher profitability we think 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, and here for those in the Medical – Pharmaceuticals industry.
Click here to checkout our Healthcare Sector Report for 2022
IDXX shares were trading at $547.68 per share on Wednesday afternoon, down $4.08 (-0.74%). Year-to-date, IDXX has declined -16.82%, versus a -3.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
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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