Shares of veterinary diagnostics leader IDEXX Laboratories, Inc. (IDXX, Financial) detracted from performance for the period held. Veterinary visits are still being adversely impacted by tight labor markets and challenging comparisons after a surge of pet adoptions during the pandemic. However, the rate of decline seems to have stabilized, and we see increasing evidence that long-term secular trends around pet ownership and pet care spending have been structurally accelerated. IDEXX’s competitive trends are outstanding, and we expect new proprietary innovations and sales force expansion to be meaningful contributors.
IDEXX is the market leader in animal health diagnostics, with more than 50% market share across all modalities. It is benefiting from strong long-term secular trends in the veterinary health market, including growth in the pet population, the humanization of pets, and the growing intensity of diagnostic utilization. IDEXX generates recurring revenue, underpinned by 5-to 6-year contracts and annual retention rates of between 97% and 99%. The stock declined 38% last year, and we believe its valuation and growth are attractive at current levels.
From Ron Baron (Trades, Portfolio)'s Baron Focused Fund fourth-quarter 2022 letter.
