Morgan Stanley: IDEXX’s third-quarter consumables growth beats expectations; full-year revenue guidance raised but margin expansion target lowered

Where did third-quarter results outperform?

IDEXX reported third-quarter revenue of 1.214 billion dollars, up 9.9% year over year and above market expectations of 1.191 billion dollars; organic revenue growth was 10.0%, also above the market expectation of 8.2%.
Earnings per share were 4.01 dollars, above Morgan Stanley’s estimate of 3.72 dollars. Of the 0.29-dollar beat, better revenue and profitability contributed approximately 0.15 dollars, while non-operating items such as interest expense and the tax rate contributed approximately 0.14 dollars.

Companion animal diagnostics recurring revenue grew organically by 11.0% in the third quarter, above the market expectation of 9.5%. Within that, VetLab consumables grew 14.6%, and reference laboratory diagnostic and consulting services grew 10.2%, above respective market expectations of 12.8% and 7.4%.
Not all product lines strengthened in tandem: rapid assay products grew organically by 0.8%, below the market expectation of 4.1%; diagnostic services and accessories grew 5.4%, also below expectations of 7.3%.
Demand at US veterinary clinics remained weak: clinic revenue rose 2.4% year over year in the third quarter, while total visits fell 3.2%. Against this backdrop, the company’s recurring diagnostics revenue growth drew greater attention.

The company raised its 2026 organic revenue growth guidance from 8.5%–9.7% to 9.3%–10.0%; it raised its organic growth guidance for companion animal diagnostics recurring revenue from 9.5%–10.7% to 10.3%–11.0%. The midpoints of both new ranges were above the respective estimates of Morgan Stanley and the market.
The company also lowered its full-year operating margin expansion guidance from 70–90 basis points to 50–70 basis points, below Morgan Stanley’s estimate of 75 basis points and the market expectation of 79 basis points. The guidance includes a 30-basis-point benefit from foreign exchange and effects related to the CoVet acquisition.
Despite the lower margin expansion target, full-year earnings per share guidance rose from 14.69–14.94 dollars to 14.96–15.16 dollars, above Morgan Stanley’s estimate of 14.83 dollars and the market expectation of 14.77 dollars.

IDEXX placed 1,904 inVue Dx instruments in the third quarter, above Morgan Stanley’s estimate of 1,271. The company previously set a target of 5,500 cumulative placements by the end of 2026; Morgan Stanley is watching the pace of progress toward the latest full-year target and the controlled expansion of fine-needle aspirate testing capabilities.
Morgan Stanley believes the company’s competitive position and innovation pipeline support its long-term assessment, and assigns an Overweight rating and a 805-dollar price target. Its valuation uses a 2027 forward price-to-earnings multiple of 48.4 times and includes a premium to peers.