Steady Growth and High Margins: IDEXX's Winning Strategy in Pet Health
Pets are becoming increasingly popular worldwide as affluence grows. Two of the top stocks that can capitalize on this trend are Zoetis (ZTS) and IDEXX Laboratories (IDXX). I have previously covered Zoetis, and in this post, I will focus on IDEXX.
While Zoetis leads the market in animal medicine and vaccines, IDEXX is not a competitor but rather complements Zoetis by leading in animal diagnostics and software.
Most pharmaceutical and diagnostics companies focus on human health, but only a few have ventured into animal health, particularly pet care. IDEXX is one of these pioneers, having built a substantial base of expertise and experience that now serves as its competitive moat. It has only one major competitor, Antech Diagnostics, which is part of the VCA Animal Hospitals Group, itself a subsidiary of—wait for it—Mars Inc., the company famous for its chocolate bars. Mars acquired VCA to complement its pet food division, creating a vertically integrated business that spans diagnostics, daycare, veterinary hospitals, and pet foods. However, VCA is not publicly listed, so its financial results are not available, and we cannot invest in it directly. Nevertheless, IDEXX and Antech form a duopoly in the animal diagnostics sector.
Consider this: when an animal falls ill, its concerned owner will likely take it to the vet. Those who can afford pets are usually more affluent and therefore more capable of handling higher medical expenses. While it may seem opportunistic, this reality is advantageous for businesses like IDEXX. The company's surveys indicate that 95% of pet owners take their pets to veterinarians, and over 80% are willing to cut spending in other areas to prioritize treatment for their sick pets. Another positive aspect is that animals have shorter lifespans than humans, meaning they reach old age and its associated ailments more quickly. Consequently, a pet owner may care for several pets over their lifetime, creating a continuous need for veterinary services.