IDEXX Laboratories, Inc. (IDXX) develops, manufactures and distributes products and provides services for the companion animal veterinary, livestock and poultry, dairy and water testing markets worldwide. The company also sells a line of portable electrolytes and blood gas analyzers for the human point-of-care medical diagnostics market.
Chewy, Inc. (CHWY) operates an online platform to sell pet food and medications and other pet-related products. The company offers its products and services through its website and mobile applications.
A heightened level of companion animal adoptions during the COVID-19 lockdowns has enabled the U.S. pet industry to generate a 6.7% year-over-year rise in sales to a record $106.70 billion in 2020. With a continuation of remote working encouraging continued pet adoption, the U.S. pet industry is likely to maintain its growth streak in 2021. According to the American Pet Products Association (APPA), pet industry sales are expected to hit $109.6 billion in 2021.
While CHWY lost 21.6% over the past three months, IDXX gained 3.4%. But, in terms of their past year’s performance, IDXX is a clear winner with 73% gains versus CHWY’s 56.9% returns. But, which of these stocks is a better pick now? Let’s find out.
Latest Movements
IDXX acquired ezyVet, a cloud-based practice information management system (PIMS), on June 2. With this acquisition, IDXX should be able to further expand its world-class cloud software offerings that support customers with technology solutions that raise the standard of care for patients, improve practice efficiency, and enable more effective communication with pet owners.
On January 28, IDXX announced that it would contribute $3.6 million to Tuskegee University College of Veterinary Medicine (TUCVM) over six years to advance diversity, equity, and inclusion in veterinary medicine. In response to tremendous growth in diversity in the pet-owning population over the past 10 years, the initiative should contribute to ensuring the highest standard of care for all pets in all communities.
Last month, CHWY introduced a series of features on its popular telehealth service, Connect with a Vet. Features such as Video consultation, pre-scheduling a virtual vet consultation, and extended availability even on weekends should enhance the experience of customers and veterinarians. The company hopes to see high demand for its service because pet health check-ups and medications have been ramping up in the pet industry over the past year.
Recent Financial Results
IDXX's total revenues for its fiscal 2021 first quarter, ended March 31, 2021, increased 24.2% year-over-year to $777.71 million. Its net revenue from its Companion Animal Group (CAG) segment increased 25.5% year-over-year to $692.77 million. The company’s gross profit came in at $470.78 million, up 30.9% from the prior-year period. Its income from operations is reported at $247.62 million for the quarter, which represents a 71.6% improvement year-over-year. While its net income increased 82.7% year-over-year to $204.26 million, its EPS increased 82.2% year-over-year to $2.35.
For its fiscal 2020 fourth quarter, ended January 31, 2021, CHWY’s net sales increased 50.8% year-over-year to $2.04 billion. However, the company’s adjusted net income is reported to be $45.03 million, compared to $15.06 million in the prior-year period. Its adjusted net income per share came in at $0.11, compared to a $0.04 loss per share in the year-ago period.
Past and Expected Financial Performance
IDXX’s revenue and total assets grew at CAGRs of 11.8% and 16.6% respectively, over the past three years. The company’s EPS has increased at a 55.1% rate over the past year.
Analysts expect IDXX’s revenue to increase 24.6% year-over-year for its fiscal 2021 second quarter (ending June 30, 2021), 14.9% in the current year, ending December 2021, and 13.5% next year. Its EPS is expected to increase 18.9% year-over-year for the second quarter, 21.2% for the current year, and 11.9% next year.
In comparison, CHWY’s revenue and total assets grew at CAGRs of 50.3% and 51.3%, respectively, over the past three years. The company’s EPS has declined at a rate of 64.2% over the past year.
Analysts expect CHWY’s revenue to increase 24.9% in its fiscal year 2022 second quarter (ending July 31, 2021), 25.2% in the current year, ending January 2022, and 20.2% in the next year, ending January 2023. However, its EPS is expected to remain negative in the current year.
Profitability
CHWY's trailing-12-month revenue is 2.5 times IDXX’s. However, IDXX is more profitable, with a 58.9% gross profit margin versus CHWY’s 25.5%.
Also, IDXX’s ROTC and ROA values of 32.4% and 23.7%, respectively, compare favorably with CHWY’s negative values.
Valuation
In terms of non-GAAP forward P/E, IDXX is currently trading at 1880.64x, 2688.6% higher than IDXX, which is currently trading at 67.44x. Also, IDXX’s 46.98x forward EV/EBITDA is significantly lower than CHWY’s 167.98x.
Thus, IDXX is more affordable here.
POWR Ratings
While CHWY has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, IDXX has an overall grade of B, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
In terms of Sentiment, IDXX has been graded a B, which is in sync with the company’s revenues and earnings growth potential. In comparison, CHWY’s Sentiment Grade of C reflects relatively weak earnings growth expectations.
IDXX has an A grade for Quality, which is consistent with its higher-than-industry profitability ratios. The company’s 27.9% EBIT Margin is 1484.4% higher than the 1.8% industry average. However, CHWY has a C grade for Quality, which is in sync with the company’s 25.5% gross profit margin, which is 26.3% lower than the 34.6% industry average.
Of 181 stocks in the Medical - Devices & Equipment industry, IDXX is ranked #15. CHWY is ranked #59 of 72 stocks in the Consumer Goods industry.
Beyond what we’ve stated above, our POWR Ratings system has also rated both IDXX and CHWY for Growth, Momentum, Stability, and Value.
Get all CHWY ratings here. Also, click here to see the additional POWR Ratings for IDXX.
The Winner
The introduction of virtual medical consultation of pets and the rising demand for pet food and other products should allow IDXX and CHWY to grow substantially in the near term. However, IDXX appears to be a better buy based on its impressive financials and higher profitability.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Medical - Devices & Equipment industry, and here for those in the Consumer Goods industry.
IDXX shares were trading at $551.48 per share on Thursday afternoon, up $3.92 (+0.72%). Year-to-date, IDXX has gained 10.32%, versus a 12.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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