T2 Biosystems (TTOO) vs. IDEXX Laboratories (IDXX): Which Medical Stock Is Poised for More October Gains?

In this piece, I evaluated two medical device companies, T2 Biosystems, Inc. (TTOO) and IDEXX Laboratories, Inc. (IDXX), to determine which has the potential for better returns. Based on the fundamental comparison of these stocks, I believe IDXX is the better buy for the reasons explained throughout this article.

With an increasing number of elderly individuals requiring healthcare, the growing prevalence of chronic diseases like diabetes, cancer, and cardiovascular disease, and the rising emphasis of governments and healthcare agencies toward early diagnosis and treatment, the demand for medical devices is expected to grow significantly in the foreseeable years.

For instance, worldwide diabetes cases are expected to surge from 529 million to 1.30 billion by 2050. Thus, the anticipated increase in the number of people with diabetes would propel the demand for several wearable and portable medical devices to monitor the condition.

According to a report by Fortune Business Insights, the global medical devices market is expected to reach $799.67 billion by 2030, growing at a CAGR of 5.9% during the forecast period (2023-2030). Meanwhile, the U.S. medical devices market is projected to increase from $192.78 billion in 2023 to $291.04 billion by 2023, exhibiting a CAGR of 6.1%.

Further, growing technological advancements in medical devices should drive the industry’s growth. For example, AI-based medical devices have improved capabilities and revolutionized healthcare by helping professionals reach accurate diagnostics and personalizing treatment plans, aiding surgical procedures, and improving overall patient care.

“There are many good uses for AI in the medical device industry, such as data management, remote surgery, diagnostic and procedural assisting, clinical trials, and more,” said Alexandra Murdoch, GlobalData medical analyst.

Most of these AI-powered devices also provide patients with less radiation exposure compared to similar devices in the past. In addition, the Internet of Things (IoT) has significantly impacted medical devices. 3D printing technology has further rapidly found its way into the medical device industry.

As per a report by Research and Markets, the global AI in medical devices market is expected to reach $66.35 billion in 2027, growing at a CAGR of 44%.

The medical device industry’s bright growth prospects should bode well for TTOO and IDXX.

IDXX is a clear winner in price performance, with 1.9% returns over the past nine months compared to TTOO’s 88% decline. IDXX has gained 5.5% year-to-date, while TTOO plunged 86.4%. In addition, IDXX’s 23.5% gains over the past year are higher than TTOO’s decline of 96.4%.

Here are the reasons why we think IDXX could perform better in the near term:

Latest Developments

On September 19, TTOO received FDA 510(k) clearance from the U.S. Food and Drug Administration (FDA) for the T2Biothreat™ Panel. The FDA 510(k) clearance enables the company to begin marketing and selling the T2Biothreat Panel in the U.S. market.

The T2Biothreat Panel is the first and only FDA-cleared product able to detect six high-priority biothreat pathogens simultaneously and the only FDA-cleared multi-target biothreat product developed and manufactured by a U.S.-owned company. It marks a major milestone in TTOO’s collaboration with the U.S. Government and might boost its growth and profitability.

On June 15, IDXX launched the first veterinary diagnostic test for detecting kidney injury in cats and dogs. The IDEXX Cystatin B Test will be included in test panels assessing renal health, uncovering new clinical insights for about two million patient visits annually. The tests will run at IDEXX Reference Laboratories starting later this year in the U.S. and Canada, with plans to introduce in Europe in 2024.

“The IDEXX portfolio of tests and technologies enables veterinarians to intervene earlier, advance treatment, and now detect kidney injury, resulting in better outcomes throughout the lives of their patients,” said Jay Mazelsky, IDEXX President and CEO.

Recent Financial Results

For the second quarter that ended June 30, 2023, TTOO’s revenue decreased 66.8% year-over-year to $1.96 million. The company reported a loss from operations of $13.05 million during the quarter. Additionally, its net loss and net loss per share were $6.35 million and $0.08, respectively.

IDXX’s revenue increased 9.7% year-over-year to $943.63 million in the second quarter that ended June 30, 2023. Its gross profit grew 11.4% from the year-ago value to $572.85 million. Its income from operations was $296.14 million, up 66.5% year-over-year. Its net income attributable to stockholders and EPS rose 69.9% and 71.2% year-over-year to $224.24 million and $2.67, respectively.

Past And Expected Financial Performance

TTOO’s revenue has grown at a 10.3% CAGR over the past three years. However, the company’s total assets have declined at an 11.6% CAGR over the same period.

For the fiscal year ending December 2023, TTOO’s revenue is expected to decrease 55.2% year-over-year to $10 million. Also, analysts expect its EPS to remain negative for at least two fiscal years. However, the company’s revenue for the fiscal year 2024 is estimated to increase 152.5% year-over-year to $25.25 million.

Over the past three years, IDXX’s revenue and EBITDA have grown at 12.4% and 18.5% CAGRs, respectively. The company’s net income and EPS have increased at respective CAGRs of 19.8% and 21.3% over the same time frame, while its total assets have grown at a 13.6% CAGR.

Analysts expect IDXX’s revenue and EPS for the fiscal year (ending December 2023) to increase 9.4% and 22.4% year-over-year to $3.68 billion and $9.83, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 10.1% and 13.3% from the previous year to $4.06 billion and $11.13, respectively.

Profitability

IDXX’s trailing-12-month revenue is 265.9 times what TTOO generates. Moreover, IDXX is more profitable, with a trailing-12-month gross profit margin of 59.97% compared to TTOO’s negative 233.95%. Moreover, IDXX’s trailing-12-month levered FCF margin of 14.56% is higher than TTOO’s negative 172.48%.

Furthermore, IDXX’s trailing-12-month Return on Assets (ROA) and Return on Total Capital (ROTC) of 29.96% and 31.16% compared with TTOO’s negative 140.56% and negative 146.73%, respectively.

Valuation

In terms of forward EV/Sales, IDXX is currently trading at 10.04x, 9.5% lower than TTOO, which is trading at 11.10x. However, IDXX’s trailing-12-month Price/Sales multiple of 10.24 is higher than TTOO’s 0.42.

POWR Ratings

TTOO has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. Conversely, IDXX has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TTOO has a grade of D for Quality, in sync with its lower-than-industry profitability. The stock’s trailing-12-month gross profit margin and levered FCF margin of negative 233.95% and 172.48% compare unfavorably to respective industry averages of 55.67% and 0.26%.

On the other hand, IDXX has a B grade for Quality, consistent with its higher profitability relative to its peers. The stock’s trailing-12-month gross profit margin and levered FCF margin of 59.97% and 14.56% are higher than the industry averages of 55.67% and 0.26%, respectively.

Of the 143 stocks in the Medical - Devices & Equipment industry, TTOO is ranked #129, while IDXX is ranked #23.

Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, Quality, and Growth. Click here to view TTOO Ratings. Get all IDXX ratings here.

The Winner

The medical device industry’s outlook looks promising, driven by the growing prevalence of chronic diseases, a rapidly growing aging population globally, and the escalating emphasis of governments and healthcare providers on the routine and timely treatment and diagnosis of patients.

In addition, growing technological advancements in medical devices should propel the industry’s expansion. Thus, medical device companies TTOO and IDXX are well-placed to benefit from the industry’s solid growth prospects.

However, TTOO’s relatively weak financials, low profitability, and bleak growth prospects make its competitor, IDXX, a better buy this month.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical - Devices & Equipment industry here.

What To Do Next?

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IDXX shares were unchanged in premarket trading Friday. Year-to-date, IDXX has gained 5.53%, versus a 12.23% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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