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What's in Store for IDEXX Laboratories (IDXX) in Q2 Earnings?

IDEXX Laboratories, Inc. IDXX is slated to report second-quarter 2020 results on Jul 31, before market open. In the last-reported quarter, the company’s earnings per share (EPS) of $1.29 surpassed the Zacks Consensus Estimate by 4.9%. Moreover, its earnings surpassed the consensus estimate in the trailing four quarters, the average beat being 8.32%.

Let's take a look at how things have shaped up prior to this announcement.

Factors at Play

IDEXX’s overall top line is expected to have been adversely impacted by the pandemic in the second quarter due to the social-distancing policies in Europe and the United States since March. This led to the vet clinics prioritizing health care procedures per the industry and government guidelines. As was confirmed by the company during the first-quarter earnings call in April, significant fall in clinical visit activity and restriction on access to vet clinics were observed in the quarter. This trend is likely to have continued in the second quarter.

IDEXX Laboratories, Inc. Price and EPS Surprise

 

IDEXX Laboratories, Inc. Price and EPS Surprise

IDEXX Laboratories, Inc. price-eps-surprise | IDEXX Laboratories, Inc. Quote

However, IDEXX is expected to have sustained its strong earnings trajectory in Companion Animal Group (“CAG”) Diagnostic revenues in the second quarter on the back of high CAG instrument placements and continued high customer retention. The segment is also likely to have maintained strength in recurring service revenues as well as sustained robust sales of new Cornerstone and digital imaging systems, and strong growth in Neo and SmartFlow cloud-based software offerings.

Through the past few quarters, the company has been witnessing solid organic revenues in the CAG segment on strong contributions from consumable and Reference Lab as well as the growing adoption of Rapid Assays, and Veterinary Software, Services and Diagnostic Imaging Systems. This trend is likely to have continued in the second quarter. Although the ongoing coronavirus-induced economic crisis has affected the global animal health market, it is unlikely to have had any severe impact on the segment’s second-quarter revenues.

Despite the pandemic-led business challenges, IDEXX’s Water business is likely to have maintained strength as drinking water testing remains an essential service and priority for local governments and utilities. This is expected to be reflected in the second-quarter results.

The company, in April, launched the SARS-CoV-2 (COVID-19) RealPCR (Real polymerase chain reaction) Test for pets. As per the company's earlier announcement, the test is available to veterinarians in North America. Further, the company was supposed to roll out the test in other countries within a few weeks since the announcement. The launch is likely to have contributed to IDEXX’s top line.

In June, IDEXX’s subsidiary OPTI Medical Systems achieved the CE Mark and Emergency Use Authorization (EUA) for its OPTI SARS-CoV-2 reverse transcription PCR (RT-PCR) laboratory test kit that identifies SARS-CoV-2, the virus that causes COVID-19. In addition to this test, the company was granted EUA for its new OPTI DNA/RNA Magnetic Bead Kit for nucleic acid extraction from respiratory samples. These developments are expected to have boosted the company’s top line.

Through the second quarter, the rapid assay business is expected to have grown on continued robust performance of its SNAP 4Dx Plus first-generation and specialty products. Global consumable revenues are also expected to have witnessed strong growth in the to-be-reported quarter, led by expansion of the company’s premium instrument installed base and increases in diagnostic test utilization.

However, global reference laboratory services are likely to have seen a disappointing second quarter resulting from pressure on diagnostic testing levels associated with restrictions on veterinary clinical activity. As confirmed by IDEXX during the first-quarter earnings call in April, the impact (since late March through the early to mid-April) was significant in the United States and Europe, with moderate impacts in Asia-Pacific markets. This is unlikely to have changed in the rest of the second quarter, thus pulling down the overall top line.

From April to June, this S&P 500 stock has rallied 43.1% compared with the industry’s 30.2% growth and S&P 500's 25% rise despite the challenges posed by the pandemic.

Q2 Estimates

The Zacks Consensus Estimate for second-quarter 2020 revenues is pegged at $572.8 million, indicating a 7.6% fall from the prior-year quarter’s reported figure. The same for earnings is pegged at $1.19, suggesting a 16.8% fall from the figure reported in the year-ago quarter.

What Our Model Suggests

Our proven model predicts an earnings beat for IDEXX this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat.

Zacks Rank: The company currently carries a Zacks Rank #2.

Earnings ESP: IDEXX has an Earnings ESP of +18.14%. 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 as these have the right combination of elements to beat on earnings this reporting cycle. All the stocks currently carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Integra LifeSciences Holdings Corporation IART has an Earnings ESP of +20.69%.

Exact Sciences Corporation EXAS has an Earnings ESP of +6.69%.

Laboratory Corporation of America Holdings LH or LabCorp has an Earnings ESP of +134.19%.

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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.

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