IDEXX Laboratories is a global leader in veterinary diagnostics, software, and water testing solutions, with a business model centered around innovation, high-margin recurring revenue, and strong customer loyalty. Through its advanced diagnostic instruments, cloud-based software ecosystem, and expanding international footprint, IDEXX has solidified its position as a key player in the growing pet healthcare industry. With rising pet ownership, increasing demand for preventive care, and ongoing investments in technology, the company is well-positioned for long-term growth. The question remains: Should IDEXX be part of your portfolio?
This is not a financial advice. I am not a financial advisor and I only do these posts in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.
For full disclosure, I should start by mentioning that at the time of writing this analysis, I do not own any shares of IDEXX Laboratories. If you would like to view the stocks in my portfolio or copy my portfolio, you can do so on eToro. Instructions on how to do so can be found here. I do not own any stocks in any of IDEXX Laboratories' direct competitors either. Thus, I have no personal stake in IDEXX Laboratories. If you want to purchase shares or fractional shares of IDEXX Laboratories, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.
The Business
IDEXX Laboratories is a global leader in veterinary diagnostics, software, and water testing solutions. Founded in 1983 and headquartered in Maine, USA, the company develops, manufactures, and distributes products and services primarily for the companion animal veterinary, livestock, poultry, dairy, and water testing industries. It operates through three main business segments. The Companion Animal Group is the largest, providing diagnostic and information management solutions for veterinarians, including in-clinic diagnostic instruments, consumables, reference laboratory services, and veterinary software for practice management. The Water Quality Products segment is the second largest, offering testing solutions for microbiological contamination detection in water, serving government agencies, utilities, and private laboratories. The Livestock, Poultry, and Dairy segment, the smallest, provides diagnostic tests and services for livestock health management and milk safety. A significant portion of IDEXX’s revenue comes from recurring sources such as the sale of consumables, reagents, and subscription services, ensuring stable and predictable cash flow. IDEXX has built a strong competitive position through its integrated diagnostic ecosystem, high customer retention, and continuous innovation. Its comprehensive suite of diagnostic solutions, including proprietary instruments and cloud-based software, enables veterinarians to streamline operations and improve patient outcomes. The seamless integration between in-clinic instruments, reference lab services, and practice management software enhances efficiency and creates high switching costs, as customers rely on Idexx’s solutions for daily veterinary workflows. This ecosystem contributes to exceptional customer retention rates exceeding 97 percent, ensuring consistent demand for IDEXX’s products and services. Technological innovation is a key pillar of IDEXX’s competitive strength, driving improvements in diagnostic capabilities, efficiency, and customer experience. The high level of integration and data connectivity across IDEXX’s products creates significant barriers to entry. Developing a comparable end-to-end diagnostics ecosystem would require substantial investment in research and development, software, and laboratory infrastructure, making it difficult for new players to compete at scale. IDEXX’s strong brand presence, deep customer relationships, and focus on innovation further solidify its position as the leading provider of veterinary diagnostics. Its competitive moat is built on technological leadership, high switching costs, and a customer-centric approach that ensures sustained growth in the veterinary diagnostics industry.
Management
Jay Mazelsky is the CEO of IDEXX Laboratories, a role he has held since 2019 after being appointed by the board. He joined IDEXX in 2012 and served in various leadership positions before taking on the top role. Prior to IDEXX, he held leadership positions at Philips Healthcare and Agilent Technologies and also gained experience in non-leadership roles at Hewlett-Packard. He holds a bachelor's degree in Mathematics from the University of Rochester and an MBA from the University of Chicago Booth School of Business. Throughout his tenure at IDEXX, Jay Mazelsky has played a key role in shaping the company’s long-term strategy, with a focus on innovation, international expansion, and operational efficiency. In 2014, he helped lead a transformation of IDEXX’s go-to-market strategy in North America, which contributed to the company’s commercial success. His leadership has also driven significant global expansion, strategic acquisitions—such as the integration of the ezyVet veterinary software product line—and investments in manufacturing and distribution capacity to support IDEXX’s growth. As CEO, he has successfully navigated supply chain challenges while ensuring product availability and on-time delivery. Under his leadership, IDEXX has strengthened its competitive position through continued investments in technology and customer experience. Since taking over as CEO, he has overseen an improvement in IDEXX’s profit margins and free cash flow per share, which is particularly valuable from an investor’s perspective. While there is limited public information about Jay Mazelsky’s leadership style, his track record of execution and deep experience within the company give me confidence in his ability to guide IDEXX forward.
The Numbers
The first metric we will investigate is the return on invested capital (ROIC). I would like a 10-year history demonstrating a minimum annual growth of 10%. IDEXX has delivered outstanding results over the past decade, with ROIC consistently exceeding 37% annually and surpassing 40% in five out of ten years. This level of sustained performance is not surprising, as IDEXX prioritizes maintaining a high ROIC as part of its strategic focus on driving shareholder value, which is something I appreciate. In 2024, ROIC declined to its lowest level since 2015. Management has attributed this decline to macroeconomic headwinds, suggesting that these are temporary challenges and that ROIC should recover as conditions improve. It is also important to put this into perspective - despite reaching its lowest ROIC in nearly a decade, IDEXX still achieved a strong 38% ROIC in 2024, which remains highly encouraging.
The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most significant of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. IDEXX experienced a four-year period of negative equity from 2015 to 2018. This was driven by a combination of high operational costs, litigation impacts, and significant R&D investments aimed at long-term value creation, resulting in short-term financial pressure. Since 2019, the company has maintained positive equity, with growth in every year except one, which is encouraging. In 2024, IDEXX achieved its highest equity level ever, supported by revenue growth and improved cost management.
Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. IDEXX has consistently generated positive free cash flow every year for the past decade, which is not surprising given its strong business model. Despite a challenging macroeconomic environment, IDEXX delivered its highest free cash flow ever in 2024, along with its second-highest levered free cash flow margin. The company primarily allocates its free cash flow to share buybacks. In 2024, IDEXX repurchased 1.760.000 shares for $859 million, and management expects buybacks to increase further in 2025. They anticipate repurchasing between 2% and 3% of outstanding shares, reflecting their strong confidence in IDEXX’s long-term growth potential. As the company continues to grow its free cash flow, investors can expect share buybacks to remain a key part of capital allocation. The free cash flow yield has reached its highest level since 2016. While it remains relatively low, this suggests that IDEXX is trading at its most attractive valuation in several years. However, we will revisit valuation later in the analysis.
Debt
Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a three-year period, which we calculate by dividing total long-term debt by earnings. After analyzing IDEXX's financials, I found that the company has no debt, making this a non-issue from an investment perspective. In fact, IDEXX has prioritized debt reduction, and its long-term debt is now at its lowest level in the past decade. Given this strategic focus, I do not expect debt to be a concern in the future either.
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Risks
Competition presents a significant risk to IDEXX Laboratories due to the highly competitive nature of the companion animal healthcare industry. The company faces challenges from both well-established players and potential new entrants. Large, well-funded competitors such as Zoetis, Mars' Antech Diagnostics, and Heska have substantial financial and operational resources, allowing them to invest heavily in research and development, expand their service offerings, and implement aggressive pricing strategies to gain market share. At the same time, IDEXX must differentiate itself from smaller, specialized companies that focus on specific areas like veterinary diagnostics, software, or imaging solutions. One of the key competitive risks for IDEXX is maintaining its pricing power. Many competitors offer lower-cost alternatives, which could pressure IDEXX to justify its premium pricing. If the company fails to effectively communicate the value of its products and services, customers may opt for more cost-effective solutions. Given that IDEXX’s business model relies on selling diagnostic instruments that drive recurring sales of consumables and services, any slowdown in instrument adoption or downward pricing pressure could negatively impact long-term revenue growth. Industry consolidation poses another challenge. Large corporations acquiring smaller players to enhance their diagnostic capabilities could make it more difficult for IDEXX to maintain its market leadership. Additionally, mergers among veterinary practices and corporate groups could increase purchasing power, leading to stronger demands for discounts and lower-cost alternatives. This could put further pressure on IDEXX’s pricing and margins.
Dependence on third-party suppliers presents a significant risk for IDEXX Laboratories, as disruptions in the supply chain could negatively impact its ability to manufacture and deliver products, as well as maintain its cloud-based software solutions. The company relies on external suppliers for essential components, raw materials, and biological materials used in its diagnostic instruments and consumables. Additionally, some of its products are manufactured by third parties rather than in-house. This reliance means that any disruption - whether due to supply shortages, production delays, or supplier business failures - could lead to inventory shortages, order fulfillment delays, and increased costs. A major concern is IDEXX’s reliance on sole or single-source suppliers for certain proprietary components, including those used in veterinary instruments, livestock and poultry diagnostic tests, and water testing products. If these suppliers fail to meet demand, IDEXX may struggle to find alternative sources. Even when alternatives exist, switching suppliers can be costly and time-consuming due to the need for product requalification, regulatory approvals, and contract negotiations. Any delay in securing replacement materials could disrupt product availability, potentially leading to lost sales and eroding customer trust. Another key risk is price volatility and rising costs from suppliers. Factors such as inflation, trade tariffs, supply chain bottlenecks, and labor shortages can drive up the cost of raw materials and manufacturing. If IDEXX is unable to pass these costs on to customers through price adjustments, its profit margins may be negatively affected. Additionally, the lack of long-term contracts with certain suppliers increases exposure to unexpected price hikes or supply constraints, making IDEXX more vulnerable to fluctuations in sourcing costs.
Government regulations pose a significant risk to IDEXX Laboratories because of the complex and constantly changing rules it must follow in different countries. As a global company operating in over 175 countries, IDEXX must comply with a wide range of laws that control how its products are made, marketed, sold, and distributed. These regulations vary by country and product type, making it challenging to bring new products to market, continue selling existing ones, and maintain profitability. One major risk is the approval process required before IDEXX can sell certain products. In the U.S., diagnostic tests for animal health must be approved by government agencies such as the USDA, FDA, and EPA. Dairy testing products and human point-of-care analyzers also need FDA approval, while water testing products must meet EPA standards. Delays in getting these approvals - whether due to government backlogs, funding issues, or policy changes - could slow down IDEXX’s ability to launch new products and compete effectively. Beyond approvals, IDEXX also faces ongoing regulatory requirements that affect its daily operations. It must comply with laws related to product safety, labeling, environmental standards, and chemical usage. In Europe, for example, strict regulations require companies to carefully monitor the chemicals used in their products and sometimes reformulate them to meet new standards. These types of rules can force IDEXX to modify its products, adjust its supply chain, or spend more on compliance, adding costs and reducing flexibility in how the company operates.
Reasons to invest
International growth is an important reason to consider investing in IDEXX Laboratories, as the company continues to expand its presence outside the U.S. and capitalize on strong demand for its diagnostic solutions. In 2024, international recurring revenue for CAG Diagnostics grew by double digits, driven by both price increases and higher volume. Strong sales of consumables further supported this growth, reflecting increased utilization of IDEXX’s diagnostic instruments in veterinary practices worldwide. A key factor in IDEXX’s international success has been the expansion of its premium instrument installed base, particularly in Europe and Asia-Pacific. The company has consistently placed high-quality instruments in new and existing veterinary practices, strengthening its long-term recurring revenue from consumables and services. In Europe, IDEXX continues to report double-digit recurring revenue growth, with consumables growing in the high-teens, highlighting the increasing adoption of its products in key international markets. IDEXX’s investments in expanding its international sales and commercial network over the past three years are also paying off. The company’s more established sales organization has successfully increased instrument placements while ensuring that veterinary practices continue to use IDEXX’s diagnostic solutions regularly. This trend is particularly evident in Europe and Asia-Pacific, where IDEXX sees significant untapped potential for further expansion. Looking ahead, international growth remains a long-term opportunity for IDEXX as the global veterinary diagnostics market continues to expand. With increasing pet ownership, rising demand for high-quality veterinary care, and IDEXX’s ability to scale its business globally, the company is well-positioned to sustain strong international performance.
IDEXX’s software business is another important reason to invest in the company, as it helps veterinary clinics operate more efficiently while encouraging greater use of IDEXX’s diagnostic tools. The company’s cloud-based software makes it easier for clinics to manage their workflows, improve communication, and build stronger relationships with pet owners. This not only supports steady, recurring revenue but also strengthens IDEXX’s competitive position in the veterinary industry. In 2024, IDEXX saw strong demand for its cloud-based practice management software (PIMS), with more clinics switching to its modern, scalable solutions. By the end of the year, the company had exceeded its own growth expectations. Moving to the cloud is important because it makes it easier for clinics to stay within the IDEXX ecosystem, ensuring continued use of its products and driving long-term revenue. A key highlight of IDEXX’s software expansion is Vello, its pet-owner engagement platform, which has quickly gained popularity among veterinary practices. By the end of 2024, nearly 600 clinics were using Vello to streamline communication with pet owners, schedule visits, and send reminders, helping increase clinic visits and diagnostic testing. IDEXX is investing heavily in Vello and plans to add features like personalized messaging and advanced analytics, which should make it even more valuable for clinics. Beyond Vello, IDEXX Web PACS, its cloud-based imaging software, also saw strong growth in 2024. This reflects the increasing demand for digital tools that simplify veterinary tasks, such as managing X-rays and test results, allowing veterinarians to spend more time on patient care instead of paperwork. The combination of diagnostics and software is a key part of IDEXX’s strategy. By offering clinics an all-in-one solution that integrates lab testing, patient records, and communication tools, IDEXX makes its platform indispensable. This not only improves clinic efficiency but also makes it harder for customers to switch to competitors. As IDEXX continues to invest in its software offerings, this segment is likely to be a major driver of growth and long-term profitability.
The deepening human-animal bond is a strong reason to consider investing in IDEXX Laboratories, as it continues to drive demand for veterinary diagnostics and pet healthcare services. More than ever, pet owners see their animals as family members and prioritize their well-being. This shift is particularly noticeable among younger generations, such as Millennials and Gen Z, who are delaying or forgoing children and instead investing heavily in their pets' healthcare. As a result, spending on veterinary care, preventive treatments, and diagnostic testing continues to grow, providing a lasting tailwind for IDEXX. A key factor supporting IDEXX’s growth is pet owners’ willingness to invest in high-quality care. Research shows that 86% of pet owners would spend whatever it takes if their pet needed extensive veterinary treatment, and 95% consider their pet a part of the family. This mindset leads to more frequent veterinary visits, increased use of preventive care, and a growing demand for advanced diagnostic testing - all areas where IDEXX plays a critical role. Studies also show a clear link between the strength of the human-animal bond and better veterinary care, with highly bonded pet owners visiting the vet more often and opting for diagnostic screenings at a higher rate than those with weaker bonds. IDEXX is well-positioned to capitalize on this trend with its comprehensive suite of diagnostic solutions. As pets live longer, age-related conditions such as kidney disease, diabetes, and arthritis become more common, making early detection and long-term disease management increasingly important. IDEXX’s in-clinic diagnostic tools and reference lab services enable veterinarians to provide faster, more accurate diagnoses, improving treatment outcomes and strengthening pet owners' trust in veterinary professionals. With a growing pet population, increasing pet longevity, and a rising emotional connection between owners and their animals, IDEXX is poised to benefit from sustained demand for veterinary diagnostic products and software solutions.
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Valuation
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.
The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 10,06, which is from the year 2024. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 15,4% in the next five years. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on IDEXX's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $320,10,. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy IDEXX at a price of $160,05 (or lower, obviously) if we use the Margin of Safety price.
The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 929, and capital expenditures were 121. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 85 in our calculations. The tax provision was 222. We have 81,885 outstanding shares. Hence, the calculation will be as follows: (929 – 85 + 222) / 81,885 x 10 = $130,18 in Ten Cap price.
The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With IDEXX's free cash flow per share at $9,87 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $155,81.
Conclusion
IDEXX is an intriguing company with strong management and a competitive moat built on technological leadership, high switching costs, and a customer-centric approach. The company has consistently delivered a high return on invested capital and, in 2024, achieved its highest free cash flow and second-highest levered free cash flow margin ever. Competition poses a risk as IDEXX faces pressure from both large, well-funded players and smaller specialized firms targeting niche markets. Maintaining pricing power is crucial, as lower-cost alternatives and industry consolidation could increase pricing pressure, making it harder for IDEXX to sustain its premium positioning and long-term revenue growth. The company’s reliance on third-party suppliers, including sole-source providers for key components, adds further risk. Supply chain disruptions, inventory shortages, or cost increases could impact product availability, raise expenses, and erode customer trust. Additionally, evolving government regulations across different countries may delay product approvals, increase compliance costs, and limit operational flexibility, potentially affecting profitability. Despite these risks, IDEXX has significant long-term growth drivers. International expansion continues to be a key opportunity, with double-digit recurring revenue growth and increasing adoption of its diagnostic instruments in high-potential markets like Europe and Asia-Pacific. The company’s software business is also a strong growth driver, improving clinic efficiency while deepening customer loyalty through its cloud-based practice management software and pet-owner engagement platform. The deepening human-animal bond further supports IDEXX’s long-term potential, as pet owners increasingly treat their animals as family and prioritize veterinary care. This trend is driving greater demand for preventive care, diagnostic testing, and advanced treatment solutions - all areas where IDEXX is well-positioned. I believe IDEXX is a fantastic company, and buying shares at the intrinsic value of the Margin of Safety price of $320 could be a good long-term investment.
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