Neogen Corporation NEOG is well-poised to gain in the coming quarters, backed by continuous strategic progress in terms of selecting the right growth markets, R&D initiatives and acquisitions. The series of new product launches is highly encouraging. The Animal Safety unit benefits from the strong sales of a consumable line of products.
Meanwhile, an unfavorable solvency position and a challenging competitive scenario remain concerns for Neogen’s operations.
In the past year, this Zacks Rank #3 (Hold) stock decreased 8.9% against the 7.9% rise of the industry and the 25.3% increase of the S&P 500.
The renowned food and animal safety product provider has a market capitalization of $3.63 billion. The company has an estimated earnings growth rate of 38.2% for fiscal 2025 compared with the S&P 500’s 9.9%. In the trailing four quarters, NEOG delivered an average earnings surprise of 47.98%.
Let’s delve deeper.
Factors at Play
Progress in Long-Term Growth Strategy: Neogen is progressing well in terms of picking the right growth markets and gaining a bigger share of those markets. In the fiscal second quarter, the Bacterial and General Sanitation business growth benefited from pathogen business wins. Within the Indicator Testing, Culture Media and Other categories, the company is witnessing solid growth in Petrifilm, food quality and nutritional analysis sales.
In addition, Neogen is progressing well with its R&D activities and expanding into other geographies. In terms of M&A activities, the company completed the strategic bolt-on acquisition of Corvium, a SaaS provider behind the Neogen Analytics Platform. The merger integration of the 3M Food Safety Division is also on track.
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Product Launches: In January 2024, Neogen launched the SureKill Gel Bait Pro Applicator, which allows users to easily target inconvenient and challenging areas while minimizing bait waste and innovating baiting protocols. During the second quarter of fiscal 2024, the company launched its new ERP system and initiated the exit of its transition services agreements. NEOG also launched the Veratox VIP assay for the detection of walnuts, the third assay in its Veratox VIP line of enhanced quantitative ELISA products.
Earlier in 2023, Neogen launched Igenity Enhanced Dairy, a new and progressive genomic data management tool. In the same month, Neogen launched an extensive selection of new genetic tests through Paw Print Genetics and Canine HealthCheck solutions. The launch of My CatScan 2.0 marked a significantly upgraded and improved version of the test from a leader in cat genetic screening.
Animal Safety Has Strong Prospects: Neogen’s Animal Safety segment is gaining from the strong performances of a complete line of consumable products marketed to veterinarians and animal health product distributors. Further, its genomic identification and related interpretive bioinformatics services are also showing strong prospects.
The business continues to grow, led by sales of vet instruments and disposables and a new line of business with a large retail customer. Within the biosecurity portfolio, Neogen continues to grow solidly in cleaners, disinfectants and rodenticides.
Downsides
Weak Solvency: Neogen exited the second quarter of fiscal 2024 with cash and investments of $230 million. The long-term debt of $887 million was nearly unchanged from the fiscal first-quarter level. However, the outstanding debt is much higher than cash in hand, which suggests weak solvency.
Tough Competitive Landscape: Neogen faces intense competition from companies ranging from small businesses to divisions of large multinational companies. Historically, it has faced competition on the basis of the development of new technologies by its competitors, which could affect the marketability and profitability of NEOG’s products.
Estimate Trend
In the past 30 days, the Zacks Consensus Estimate for Neogen’s earnings for fiscal 2024 has remained constant at 55 cents.
The Zacks Consensus Estimate for 2024 revenues is pegged at $939.5 million, which suggests a 14.2% rise from the fiscal 2023 reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Cardinal Health CAH, Stryker SYK and DaVita DVA.
Cardinal Health has a long-term estimated earnings growth rate of 14.2% compared with the industry’s 10.8%. CAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 15.64%. Its shares have increased 51.6% compared with the industry’s 14% rise in the past year.
CAH sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Stryker, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 3.36% against the industry’s -0.96%. Shares of the company have increased 34.1% compared with the industry’s 7.9% rise over the past year.
SYK’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 5.09%. In the last reported quarter, it delivered an average earnings surprise of 5.81%.
DaVita, sporting a Zacks Rank #1 at present, has an estimated long-term earnings growth rate of 12.1% compared with the industry’s 11.3%. Shares of DVA have rallied 67.3% compared with the industry’s 22.3% rise over the past year.
DVA’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 35.57%. In the last reported quarter, it delivered an average earnings surprise of 22.2%.
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