Can CAG Growth for IDEXX (IDXX) Stock Return in Q1 Earnings?

IDEXX Laboratories, Inc.IDXX is scheduled to report its first-quarter 2018 results on May 4, before the opening bell. Last quarter, the company delivered a positive earnings surprise of 5.48%. Notably, the stock has outperformed the Zacks Consensus Estimate in each of the preceding four quarters, the average beat being 7.3%.

Let's take a look at how things are shaping up prior to this announcement.

Key Catalysts

IDEXX is expected to continue with its gain momentum in the first quarter, courtesy of a strong global rise in Companion Animal Group (CAG) Diagnostics' revenues. Last time, this upside was driven by consistent strong double-digit growth in reference labs and consumables plus owing to a high-single-digit increase registered in rapid assay sales. Management vouches for this trend to be retained further.

IDEXX Laboratories, Inc. Price and EPS Surprise

IDEXX Laboratories, Inc. Price and EPS Surprise | IDEXX Laboratories, Inc. Quote

We are also upbeat about IDEXX enhancing its commercial capabilities in the United States to maintain recurring revenue growth at CAG Diagnostics. We expect first-quarter results to reflect a rise in productivity as new sales representatives establish fresh customer relationships. Also, we anticipate the company to report exceptional customer retention rates for reference labs as well as instrument consumables in the United States and worldwide.

The Zacks Consensus Estimate of $460 million for CAG Diagnostics revenues represents a 5.9% improvement from the last-reported quarter.

Notably, IDEXX's 13-14.5% revenue growth projection for the quarter to be reported highlights its organic gains of 9.5-10.5%. Overall, the Zacks Consensus Estimate for the total quarterly revenues is pegged at $525 million..

Other factors predicted to influence IDEXX's first-quarter results are:

We pin considerable hopes on progress in the Water Business, lying on a growth trajectory of late, backed by encouraging test results in the United States as well as benefits drawn from the global go-direct initiatives. Moreover, the business witnessed 16% organic growth last quarter. Management also eyes gains from two favorable regulatory developments pertaining to wastewater in the United States and drinking water in Europe. The company earlier stated that it is perfectly on track for a continued high-single digit organic revenue boost in this business through 2018. The consensus mark for Water revenues stands at $28.3 million for the yet-to-be-reported quarter.

IDEXX carries on to expand its global footprint. It has been significantly drawing advantages from the bountiful opportunities in the emerging companion animal diagnostics markets. Further, management's consistent share buybacks underscores its robust free cash flow reserve. We believe the outcome of these endeavors will bear reflection on first-quarter conference call.

On the flip side, foreign currency fluctuation is a major headwind. Another concern is the company's heavy reliance on third-party distributors. The purchasing dynamics of distributors leave a significant impact on the company's sales of instrument consumables as well as its rapid assay products. Moreover, IDEXX has been witnessing a rise in operating expenses due to increased head count along with higher investments in portfolio development and expansion in the United States plus internationally.

Additionally, a competitive landscape in the domestic and overseas markets weighs on IDEXX's performance. Thus, the struggle to gain market traction might be a drag on first-quarter results.

Here's what the quantitative model predicts:

Per the proven Zacks model, a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has higher chances of beating estimates if it also has a positive Earnings ESP .

IDEXX has a Zacks Rank #2, which increases the predictive power of ESP. However, the company's Earnings ESP of -0.90% leaves our surprise prediction inconclusive.

We caution against the Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Stocks Worth a Look

Here are a few medical stocks worth considering with the right combination of elements to surpass estimates this time around:

Baxter International Inc. BAX has an Earnings ESP of +0.86% and is a Zacks #2 Ranked player.

Laboratory Corporation of America Holdings LH has an Earnings ESP of +1.52% and a Zacks Rank of 2.

Stryker Corporation SYK has an Earnings ESP of +0.13% and is a #2 Ranked player. You can see the complete list of today's Zacks #1 Rank stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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