Can CAG Growth Steadily Drive IDEXX (IDXX) in Q3 Earnings?

IDEXX Laboratories, Inc.IDXX is scheduled to report third-quarter 2018 results on Nov 1, before the opening bell. Last reported quarter, the company delivered a positive earnings surprise of 4.2%. Notably, the stock has outperformed the Zacks Consensus Estimate in each of the preceding four quarters, the average beat being 5.9%.

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 third quarter, courtesy of a strong global rise in Companion Animal Group (CAG) Diagnostics' revenues. In the second quarter, this upside was driven by strong consistent gains from recurring CAG revenues, high premium CAG instrument placements and consistent high growth in digital business. Management vouches for this trend to be further retained.

We are also upbeat about IDEXX enhancing its commercial capabilities in the United States to maintain recurring revenue growth at CAG Diagnostics. We expect third-quarter results to reflect an increase in productivity as new sales representatives establish fresh customer relationships. Also, we anticipate the company to report solid growth in the recurring software services associated with practice management platforms and improved digital system placements.

We also expect the company to register strong gains from high premium CAG instrument placements and continued solid growth in software, services and diagnostic imaging system businesses.

IDEXX Laboratories, Inc. Price and EPS Surprise

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

The Zacks Consensus Estimate of $477 million for CAG Diagnostics revenues represents an 11.7% improvement over the last reported quarter.

Notably, IDEXX's 9.5-11% total revenue growth projection for the quarter to be reported highlights its organic gains of 11-13%. Overall, the consensus estimate for total revenues in the third quarter is pegged at $545.6 million.

Other factors

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 9% organic growth last reported quarter.

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 $33.4 million for the yet-to-be-reported period.

IDEXX continues to expand its global footprint. It has been significantly earning advantages from bountiful opportunities in the emerging companion animal diagnostics markets. Further, management's consistent share buybacks underscore the company's robust free cash flow reserve. We believe, the outcome of these endeavors will influence the third-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 as well as expansion in the United States and 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, which in turn, might hurt third-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 #3, which increases the predictive power of ESP. It also has an Earnings ESP of +0.26%. Thus, this combination suggests that the company is likely to beat on earnings this reporting season.

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

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as these too have the right combination of elements to beat on earnings in the upcoming quarterly results.

Baxter International Inc BAX has an Earnings ESP of +0.90% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Masimo Corporation MASI has an Earnings ESP of +0.98% and a Zacks Rank of 2.

Luminex Corporation LMNX has an Earnings ESP of +54.76% and a Zacks Rank of 3.

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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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