We expand our coverage of Animal Health into Diagnostics and Distribution by initiating on Idexx(IDXX)and Covetous(CVET) with ght ratings. Both daunting at first glance, but have strong underlying growth dynamics and ent 202J Outlook, we are positive on durable long-term growth ke ZTS(0W), IDXX CVET benefiting trend. We believe the sector offers a defensive safe haven 1 Overweight DXX PT 5600: 1)Animal Health diagnosts still in the eary innings in many nternational markets with -1.5-2 more decades of growth potential, in our vie 2)Leading the Diagnostics nnovation cle with premumization of instruments: 3)A high proportion of recurring revenues(0+). strong competitive postoning and pricing dynamics drive CM OPM expansion We forecast 5-yr Revenue/EBDA CACR Overweight CVET, PT 548: 1) Supported by strong fundamentals and market leadership in each of its segments: supply chain/practice mgmt/ prescription management: 2)OUS strategy n pace through cloud-based solutions and international rollout of Rx management(starting with UK Australia/NZ): 3)Covetous platform driving greater profitability: 4)Revenue/EBITDA CACR of 6/11% over 2020-25E Screen well on Investment Framework: Both DXX&CVET check almost all the boxes in our investment framework(fer our pet Parma Ination For velu Lun 1)Both are leaders in ther respective categories 2)Clobal footprint and growth: 3) COVID-19 has accelerated fundamentally positive trends for pets: We COVID-19 has led to a fundamental shift in the importance of pets for humans and etcare trends, setting up long-term growth for the Animal Health industry Positive read across agnostics and distribution from our quarterly Veterinary Survey: 1)The majority of vets expect 10%+ growth in clinic revenues. 2) Vets recognize diagnostics as a growth driver and are increasing spend in this area: 3)High degree of stickiness to vendors.

Valuations using DCF yield avg. of -15% returns: While valuations appear daunting on earnings multiples, we do not believe they reflect the stable cash flow potential in AH IDXX has risen 88% and CVET 190% in the last 12 months (vs the S&P-179). but we forecast% and 28%potential returns respectively over the next 12 months