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Bear of the Day: NeoGenomics (NEO)

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NeoGenomics (NEO - Free Report) is a $5.3 billion provider of clinical laboratory services that specializes in cancer genetics and diagnostic testing, the fastest growing segment of the laboratory industry.

The company's high-complexity CLIA-certified testing services include cytogenetics, flow cytometry, morphology studies, anatomic pathology, molecular genetic testing, and fluorescence in-situ hybridization, a molecular cytogenetic technique that uses fluorescent probes that bind to only those parts of a nucleic acid sequence with a high degree of sequence complementarity.

Headquartered in Fort Myers, FL, NeoGenomics has labs in Nashville, TN, Irvine, CA and Fort Myers and services the needs of pathologists, oncologists, urologists, hospitals and other reference laboratories throughout the United States.

Why the Zacks #5 Rank?

NEO had a big reset in its path to consistent profitability this year. Just over two months ago, the analyst EPS consensus was looking for a 20% annual advance to 18-cents per share.

But since the company's last quarterly update in early May, that outlook has been slashed to minus 21-cents EPS, for a -240% annual decline.

Part of the profit decline may be due to a recent flurry of acquisitions the company has made in the testing space, that are diluting both its cash and shares.

In March NeoGenomics made a deal to acquire Trapelo Health, an information technology company focused on precision oncology, for $65 million in cash and stock. At the time, analysts from Needham & Co. wrote...

"We believe that the Trapelo Health acquisition complements NeoGenomics' growing informatics offering, combining precision medicine with NeoGenomics' leading test menu, expanding patient database, and access to healthcare networks, cancer centers, and laboratories."

Then in May NeoGenomics exercised an option to acquire the remaining equity interest in the UK-based Inivata, Ltd. for $390 million. NEO acquired a minority stake in Inivata, a commercial-stage liquid biopsy platform company, in May 2020 for $25 million, with a fixed-price option to purchase the remaining equity.

The acquisition will help expand the market opportunity for NeoGenomics, as well as accelerate its long-term growth rate with increasing adoption of liquid biopsy for therapy selection in the community setting. The company said at the time it would fund the deal using its available cash and proceeds from a concurrent private placement of $200 million of equity to a group of institutional investors.

Why NEO Should Stay On Your Oncology Radar

I invest heavily in this space and I'm just learning about NEO. At any given time I either own shares or am trading shares of Exact Sciences (EXAS - Free Report) , Guardant Health (GH - Free Report) , Invitae (NVTA - Free Report) , and Natera (NTRA - Free Report) for my Healthcare Innovators portfolio.

That's because I believe the most important revolution in medicine right now is the one involving what I call "The 5 P's of Powerful Healthcare"...

Personalized
Proactive
Precise
Predictive
Preventive

And that's what all these companies do in different ways to gain early detection of cancer, monitor vital biochemistry and organ systems, or diagnose potential genetic, hereditary and lifestyle issues that may predispose a patient to a certain disease.

In the new era of "tele-health," it's more important than ever for doctors and patients to work together on The 5 P's. To learn more about them, and all these fantastic companies, stop by my Healthcare Innovators portfolio soon.

From Natera giving families early knowledge about their babies with non-invasive prenatal screening to Exact Sciences giving early detection of colon cancer with home test kits, the field of diagnostics is exploding with innovation and competition that will raise awareness and slash costs.

And right now, NEO has one of the best valuation pictures among all these companies, trading at under 10 times forward sales projections. So when the EPS estimates stop going down for NEO, it may be time to invest. The Zacks Rank will let you know.

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