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Here's Why You Should Retain Neogen (NEOG) Stock for Now

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Neogen Corporation (NEOG - Free Report) is well poised for growth in the coming quarters, backed by a slew of product launches and collaborations. The company, at present, operates under two business segments — Food Safety and Animal Safety— that registered impressive performance in the fourth quarter of fiscal 2021. Strong revenues along with solid domestic and international performance buoy optimism for the stock. However, downsides may result from a stiff competitive landscape and currency headwinds.

Over the past year, the Zacks Rank #3 (Hold) stock has gained 9.1% compared with 8% growth of the industry and 34% rise of the S&P 500.

The renowned food and animal safety products provider has a market capitalization of $4.57 billion. Its fourth-quarter fiscal 2021 earnings missed the Zacks Consensus Estimate by 6.3%.

Over the past five years, the company registered earnings growth of 8.6%, ahead of the industry’s 5.8% rise and the S&P 500’s 2.8% increase. The company projects 8.96% growth for the next year compared with the industry’s growth projection of 18.9% and the S&P 500’s projected 13.08% growth.

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Let’s delve deeper.

Q4 Upsides: Neogen exited the fiscal fourth quarter with better-than-expected revenues. The year-over-year improvement in revenue performance looks encouraging. The company witnessed strong growth across all its reported segments, driven by enhanced sales of testing solutions, veterinary instruments and animal care line. Neogen’s solid domestic and international performance across all businesses buoys optimism. The Soleris NG and StandGuard product line also contributed to growth.

Food Safety Sales Growth Continues: Neogen continues to see rising revenues from the Food Safety business. For fourth-quarter fiscal 2021, the company’s Food Safety revenues reflected 18% (up 12% organically) year-over-year growth. The acquisitions of international distributors and Megazyme strongly contributed to the company’s quarterly revenues. Further, growth was boosted by continued strong sales of the recently-launched Soleris Next Generation rapid microbial testing solution and increase in sales of natural toxin and allergen test kits.

Animal Safety Business Grows Well: Animal Safety revenues in the fiscal fourth quarter rose 15.6% year over year, driven strong growth in veterinary instruments line, primarily needles and syringes and the animal care line. Further, a 33% increase in sales of rodent control products and a 26% rise in insect control products, enhanced by revenues from the company's acquisition of the StandGuard product line in July 2020 contributed to the segment’s impressive performance. Revenues from Neogen’s worldwide genomics business increased 21% in the fiscal fourth quarter on a year-over-year basis.

Strategic Partnerships Deals: Of late, Neogen has inked a series of partnership deals. Neogen’s collaboration with Center for Aquaculture Technologies in June 2021 is expected to support the aquaculture sector in making more informed breeding decisions. The acquisition of Ireland-based Megazyme, Ltd. in January 2021 offers a natural and complementary expansion of Neogen’s food diagnostics portfolio while simultaneously aligning with the objective to provide comprehensive leading solutions to global food producers. Other notable partnerships include the ones with Transnetyx and National FFA.

Downsides

Currency Headwinds: Neogen’s international business is susceptible to unfavorable currency movements. Revenues from the company’s Brazilian operations in fiscal 2021 increased 15% in local currency but declined 8% when translated to U.S. dollar as the Brazilian real devalued significantly against the dollar, especially in the first half of this year.

Competitive Landscape: Neogen faces intense competition from companies ranging from small businesses to divisions of large multinational companies. For fiscal 2021, gains in the Food Safety segment were partially offset by a 30% decline in the sale of drug residue test kits from competitive pressure and lower demand due to poor economic conditions in European markets.

Estimate Trend

Neogen has been witnessing a positive estimate revision trend for fiscal year 2022. Over the past 90 days, the Zacks Consensus Estimate for its earnings has stood at 67 cents.

The Zacks Consensus Estimate for first-quarter fiscal 2022 revenues is pegged at $122.4 million, suggesting an 11.95% rise from the year-ago reported number.

Other Key Picks

A few better-ranked stocks from the Medical Products industry include VAREX IMAGING (VREX - Free Report) , Envista Holdings Corporation (NVST - Free Report) and BellRing Brands, Inc. (BRBR - Free Report) .

VAREX IMAGING, sporting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Envista Holdings, which carries a Zacks Rank #2, has a long-term earnings growth rate of 27.4%.

BellRing Brands, which carries a Zacks Rank #2, has a long-term earnings growth rate of 29.1%.