Offshore

⁠Dimitry Nakhla | Babylon Capital®
A sober valuation analysis on $IDXX 🧘🏽‍♂️

•NTM P/E Ratio: 34.64x
•10-Year Mean: 49.42x

•NTM FCF Yield: 2.83%
•10-Year Mean: 1.95%

As you can see, $IDXX appears to be trading below fair value

Going forward, investors can receive ~42% MORE in earnings per share & ~45% MORE FCF per share 🧠***

Before we get into valuation, let’s take a look at why $IDXX is a high-quality business

BALANCE SHEET✅
•Cash & Short-Term Inv: $308.64M
•Long-Term Debt: $524.76M

$IDXX has a strong balance sheet, reflected by its 25x FFO Interest Coverage

RETURN ON CAPITAL✅
•2019: 44.0%
•2020: 42.1%
•2021: 53.9%
•2022: 43.1%
•2023: 42.9%
•LTM: 44.6%

RETURN ON EQUITY✅
•2019: 507.5%
•2020: 143.6%
•2021: 112.6%
•2022: 104.6%
•2023: 80.7%
•LTM: 59.4%

$IDXX has excellent return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $1.38B
•2023: $3.66B
•CAGR: 10.24%

FREE CASH FLOW✅
•2012: $168.38M
•2022: $792.60M
•CAGR: 16.75%

NORMALIZED EPS✅
•2013: $1.79
•2023: $10.06
•CAGR: 18.84%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 107.97M
•LTM Shares Outstanding: 83.59M

By reducing its shares outstanding ~22.5%, $IDXX increased its EPS by ~29.0% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 60.7%
•LTM Operating Margins: 28.9%
•LTM Net Income Margins: 22.5%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive about ~42% MORE in EPS & ~45% MORE FCF per share

Using Benjamin Graham’s 2G rule of thumb, $IDXX has to grow earnings at a 17.32% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2025 EPS growth over the next few years to be less than the (17.32%) required growth rate:

2024E: $10.69 (6.2% YoY) *FY Dec

2025E: $12.19 (14.1% YoY)
2026E: $13.88 (13.8% YoY)

$IDXX has a great track record of meeting analyst estimates ~2 years out, so let’s assume $IDXX ends 2026 with $13.88 in EPS & see its CAGR potential assuming different multiples

38x P/E: $527.44💵 … ~12.7% CAGR

36x P/E: $499.68💵 … ~9.9% CAGR

34x P/E: $471.92💵 … ~7.1% CAGR

32x P/E: $444.16💵 … ~4.1% CAGR

As you can see, even we’d have to assume a >36 P/E just for $IDXX to compound at an attractive rate, an assumption that leaves us with little margin of safety & still the risk of more multiple compression offsetting the benefits of earnings growth

However, you can see $IDXX historically bottoms near these levels and has traded for 30x twice in the past 10-years (both instances in 2015 when the company did not have the scale it has today

Today, at $407💵 $IDXX is starting to peaks my interest (perhaps worth a nibble)

I consider $IDXX a strong buy at closer to $365💵 (~10% lower from today’s price) which gets $IDXX near 31x earnings, a level of very strong fundamental support and a level that’s justified by its growth rate & quality

At $365💵, given today’s estimates, I can reasonably assume ~11% CAGR at a 33x multiple

#stocks #investing
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𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
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