Streetwise for Sunday, June 9, 2019

How do you navigate the current turbulence of global uncertainty and the resulting uncertainty on Wall Street? One often tried technique is to mimic the moves of successful investors. 


A 2008 study by Gerald S. Martin of American University and John Puthenpurackal of the University of Nevada, Las Vegas, showed when SEC filings reveal changes in the Berkshire Hathaway portfolio, the stock prices of any newly acquired companies had an abnormal one-day increase, averaging 4 percent. 






The company is IDEXX Laboratories (IDXX)and it is currently trading at about $245 per share. The company has come to my attention on several occasions because its line of work. Note that my own menagerie encompasses multiple horses, donkeys, dogs and cats…not to mention three goats and a parrot.

IDEXX is a medical equipment and services player operating in the animal veterinary space. The company’s strong fundamentals, excellent revenue growth, profitability, and a decent first quarter have resulted in the shares rising significantly. 


So, why is Wall Street so enthralled with IDEXX? To start, earnings have been increasing at the rate of 16% per year over the last decade. This strong growth to likely to continue for some time. 

The company operates with high profit margins and strong returns on equity. Over the last decade the company’s profit margins have increased from 11% up to 17% and the company’s return on equity averages over 20%.

The company’s long-term debt is about 46% of its total asset value. The company’s total liabilities represent 97% of its total asset value. Which means that the company essentially owes as much as it owns.

The company also has a history of declining working capital levels meaning that its short-term assets (such as cash and deposits) just covers its short-term liabilities (bills the company must pay).


Do I like the company? Yes, I do but only if there is a pullback in the share price. The intrinsic value is about 80 percent of the current share price, versus a preferred 110 percent. Nonetheless, my projected earnings number for this year is $4.75, as compared to $4.26 in 2018, with a projected share price of $260, or about 6% above where the shares are currently trading. 
