Heska Corp, a IDEXX alternative


Back in 2015, during my ongoing research and due diligence for candidates to buy in the healthcare sector, I ran across an anomaly - Heska Corporation (HSKA) - given in the peer group comparison for ANI Pharmaceuticals (a company that I invested in and gave a heads up about in a post here over a year ago http://discussion.fool.com/small-cap-ani-pharmaceuticals-3214115… ). I say anomaly because Heska serves the pet healthcare sector. After completing my due diligence in 2015, I decided to invest in this up and coming small cap.

IDEXX Laboratories recent appearance here jogged my memory that back in 2015, I conducted a comparison analysis, Heska vs. IDEXX and others. I found the old files on my retired MacBook Pro that I’ve updated with FY 2016 info for only Heska and IDEXX and provide hereafter for those interested.


The following are excerpts from the Heska FY 2016 10K filing:

We sell advanced veterinary diagnostic and specialty products. Our offerings include blood testing instruments and supplies, digital imaging products, software and services, vaccines, local and cloud-based data services, allergy testing and immunotherapy, and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products. Our core focus is on the canine and feline healthcare space.

Products and Services
Our business is composed of two reportable segments, Core Companion Animal Health (“CCA”) and Other Vaccines, Pharmaceuticals and Products (“OVP”).

The CCA segment includes, primarily for canine and feline use, blood testing instruments and supplies, digital imaging products, software and services, local and cloud-based data services, allergy testing and immunotherapy, and single use offerings such as in-clinic diagnostic tests and heartworm preventive products.

The OVP segment includes private label vaccine and pharmaceutical production, primarily for cattle but also for other species including equine, porcine, avian, feline and canine. All OVP products are sold by third parties under third party labels.

[For more detailed information, here’s the latest Heska Investor Presentation:
https://www.heska.com/documents/investor_relations/heska-inv… ]

Our market is intensely competitive. Our competitors include independent animal health companies and major pharmaceutical companies that have animal health divisions. We also compete with independent, third-party distributors, including distributors who sell products under their own private labels. In the point-of-care diagnostic testing market, our major competitors include IDEXX Laboratories, Inc., Abaxis, Inc. and Zoetis Inc. The products manufactured by our OVP segment for sale by third parties compete with similar products offered by a number of other companies, some of which have substantially greater financial, technical, research and other resources than us and may have more established marketing, sales, distribution and service organizations than our OVP segment’s customers. Companies with a significant presence in the animal health market such as Bayer AG, CEVA Santé Animale, Eli Lilly, Merck, Sanofi, Vétoquinol S.A., Virbac S.A. and Zoetis may be marketing or developing products that compete with our products or would compete with them if successfully developed. These and other competitors and potential competitors may have substantially greater financial, technical, research and other resources and larger, more established marketing, sales, distribution and service organizations than we do. Our competitors may offer broader product lines and have greater name recognition than we do.


	           HESKA      IDEXX
Market Cap	 0.696 B    13.53 B
Employees	     327      7,365
52-wk high	   99.98     154.56
3/24/17 Price	   98.72     153.74
52-wk low	   26.26      75.03
EV/EBITDA (mrq)	   32.24      33.13
P/E (ttm)	   69.03      63.01
Fwd P/E	           48.16      45.35
P/B (mrq)	    7.97	N/A
P/S (ttm)	    5.35       7.62

Heska Corporation is a small cap $696.26 million company with a currently high 69 P/E ratio due to the stock price rocketing upward 270% to a recent 52-week high of $99.98/share.

Graphically, here’s a chart showing HSKA substantially outperforming the S&P 500 and crushing its competitor IDXX performance over the recent 52-week period.


What more needs to be said, given the following Heska Y-oY percentage gains in revenue, net income and EPS that this board has very high proclivities for.

REVENUE $M    HESKA  YoY Change	  IDEXX  YoY Change
FY 2016	      130.1	24.4%	1,775.4	  10.8%
FY 2015	      104.6	16.4%	1,601.9	   7.8%
FY 2014	       89.8	14.7%	1,485.8	   7.9%
FY 2013	       78.3	 7.6%	1,377.1	   6.5%
FY 2012	       72.8		1,293.3	
FY 2016	       10.5    100.6%	  222.0	  15.6%
FY 2015	        5.2    101.3%	  192.1	   5.6%
FY 2014. 	2.6		  181.9	  (3.1%)
FY 2013	       -1.2		  187.8	   5.3%
FY 2012	        1.2		  178.3	
EPS diluted $					
FY 2016	       1.43     93.2%	   2.44	  19.0%
FY 2015	       0.74	80.5%	   2.05	  14.5%
FY 2014	       0.41		   1.79	   2.9%
FY 2013	      (0.21)		   1.74	   9.4%
FY 2012        0.22		   1.59	


While Heska gross margins are steady, both operating and profit margins are on the rise.

2016	 41.4%	54.9%
2015	 42.3%	55.6%
2014	 39.8%	54.9%
2013	 39.1%	54.9%
2012	 42.7%	54.1%
2016	 12.7%	19.7%
2015	  8.2%	18.7%
2014	  3.2%	17.5%
2013	 -1.8%	19.4%
2012	  3.0%	20.3%
2016	  8.1%	12.5%
2015	  5.0%	12.0%
2014	  2.9%	12.2%
2013	 -1.5%	13.6%
2012	  1.7%	13.8%


Both companies are creating positive economic value for their investors. ROIC means Return of Invested Capital; WACC is Weighted Average Cost of Capital; EVA means Economic Value Add and represents the ROIC minus WACC spread. So, as shown below for 3/24/2017, Heska is creating 9.3 cents of pure economic value for every dollar invested, and IDEXX is creating 26.7 cents for every dollar invested.

3/24/17	15.3%	5.9%	9.3%	3/24/17	32.0%	5.4%	26.7%
2016	15.6%	8.3%	7.3%	2016	33.4%	4.6%	28.8%
2015	17.3%  10.6%	6.7%	2015	29.4%	3.8%	25.6%
2014	21.9%	9.6%   12.3%	2014	28.2%	9.1%	19.1%
2013	17.6%	5.2%   12.3%	2013	29.4%	9.4%	20.0%
2012	21.1%	5.8%   15.3%	2012	29.2%	8.0%	21.2%
2011	19.4%	6.8%   12.7%	2011	28.3%	8.2%	20.1%
2010	18.3%  11.0%	7.3%	2010	26.3%  11.5%	14.9%
2009	16.9%  11.3%	5.6%	2009	23.5%  12.3%	11.3%
2008	17.6%	8.8%	8.8%	2008	24.2%. 11.5%	12.7%
2007	14.1%  10.7%	3.4%	2007	24.4%	3.7%	20.7%


($ M)		
2016	 2.7	270.0
2015	(1.6)	133.0
2014	 3.2	175.0
2013	(3.3)	167.0
2012	(1.9)	164.0


Cash (mrq)	        10.79 M    391.85   M
Working Capital	        22.86 M    (88.984) M
Total Debt (mrq)	 0.75 M    593      M
Total Equity (mrq)     86.975 M   (108.213) M
Total Capitalization   86.975 M   (108.213) M
Debt/Equity (mrq)	0.9%	   (11.11%)
Debt/Capitalization	0.9%	
Current ratio (mrq)	1.71	     0.90

Heska clearly has an exceptional, superior balance sheet in the FY 2016 10K report that results in an extremely low debt/equity ratio of less than 1%, a high current ratio and an extremely low debt/capitalization ratio of less than 1%. A non-GAAP measure of a company’s leverage is the company’s Debt-to-Capitalization Ratio, i.e., the ratio of its total debt (short-term and long-term) to its combined total debt and total equity. This ratio is important because, in the event of an economic turndown, a company with a high ratio may have a difficult time making the interest payments on its debt.

On the other hand, back in 2015 when I looked at IDEXX, the company had a very problematic balance sheet that remains to date and requires further analysis by potential investors.


I like a lot my anomaly find in 2015 - Heska Corporation.

As always, conduct your own due diligence and decision making.




Great find on Heska Corp and congrats on the excellent returns. I only read through your post quite quickly. However, glancing at the growth rates in revenue and EPS and comparing that to its PE, one could assume this stock is ahead of itself and now would not be a good entry point.

The operating margins have increased significantly and if that trend were to continue, such a high PE may be warranted.

It seems like it WAS a great find, but I’m not so sure about it today.

Thanks for bringing it forth though, and I could be completely wrong.

Take care,

Great post! Thanks a lot. I’m seriously considering taking at least some (if not all) my gains from IDXX and redeploying to HSKA. The one thing that gives me pause is the marketing strength of IDXX and their presence in China. I will take at look at Heska’s website and see where they do business. Even if they have no presence in Asia currently, the primary markets remain N. America and Europe for now.

This is great board! I learn new stuff here almost every time I read.

Interesting points guys but if HSKA matches IDXX’s performance why attach any additional value to its China presence? Don’t get me wrong I’m very bullish on China and the China/Asian factor but if it doesn’t produce an advantage what’s the point of the risk and over-reach.
ps I hold Neogen too - it’s up ~20% for me.

Future growth potential is what I see as advantage with China.