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Here's Why You Should Hold Onto 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 strength in its Food Safety and Animal Safety segments. Robust international performance also buoys optimism. However, stiff competition and mounting operating expenses do not bode well.
Over the past six months, this currently Zacks Rank #3 (Hold) stock has declined 17.6% compared with the 18.1% fall of the industry and the 4.7% decrease of the S&P 500.
The renowned food and animal safety products provider has a market capitalization of $3.75 billion.
Over the past five years, Neogen registered earnings growth of 8.6%, ahead of the industry’s 8.3% rise. NEOG projects 13.6% growth for next year compared with the industry’s growth projection of 20.8%.
Let’s delve deeper.
Key Catalysts
Animal Safety Business Grows Well: Animal Safety revenues in the fiscal second quarter 2022 were up 10.3% (10% organically) year over year. The upside can be attributed to strong growth in the veterinary instruments line (up 30%), which primarily includes needles and syringes, and the animal care line (up 18%), driven by the relaunch of ThyroKare supplement in February 2021 and strength in the equine and companion animal markets that returned to the pre-pandemic demand levels.
International Business Holds Solid Ground: Neogen’s international business reported impressive results for second-quarter fiscal 2022. NEOG’s international operations registered 20% growth in sales in the fiscal second quarter. Revenues from NEOG’s worldwide animal genomics business increased 8% in the same period on a year-over-year basis. The upside was primarily driven by continued strength in the beef and dairy cattle, sheep and poultry markets.
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Strategic Partnership Deals Look Encouraging: Of late, Neogen inked a series of partnership deals, expected to aid its segmental growth as well as international expansion.
In December 2021, Neogen entered into an agreement with 3M to combine the latter’s Food Safety Business with its existing operations. This merger is projected to establish an innovative leader in the food safety sector, with a broad product range and a strategic focus on the category's long-term growth opportunities. The transaction (slated to close by the end of the third quarter of 2022) will allow Neogen to extend its food safety offering, particularly in the areas of indication testing and pathogen detection, complementing its existing microbiology lines.
Downsides
Mounting Operating Expenses: During the fiscal second quarter, Neogen’s sales and marketing expenses rose 19.5%, administrative expenses increased 85.5%, and research & development expenses climbed 6.8% from the year-ago quarter’s figures, respectively. The rise in operating expenses pushed up the operating costs 41.7% year over year.
Tough Operating Landscape: Neogen faces intense competition from companies ranging from small businesses to divisions of large multinational companies. Some of these organizations have substantially greater financial resources than NEOG.
Historically, Neogen has faced intense competition resulting from the development of new technologies by the company’s competitor which could affect the marketability and profitability of Neogen’s products.
Estimate Trend
The Zacks Consensus Estimate for Neogen’s fiscal 2022 earnings is pegged at 66 cents, suggesting a 15.8% rise from the year-ago fiscal’s reported number.
The Zacks Consensus Estimate for fiscal 2022 revenues is pegged at $527.9 million, indicating a 12.7% increase from the fiscal 2021 reported figure.
Key Picks
A few better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .
McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 49.4% compared with the industry’s 6% growth in the past year.
AMN Healthcare, presently sporting a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. AMN surpassed earnings estimates in all the trailing four quarters, the average being 19.5%.
The stock has outperformed its industry over the past year, gaining 18% versus the 56.8% industry decline.
Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate 11.9%. It currently has a Zacks Rank of 2.
Bio-Rad has an earnings yield of 2.3% came against the industry’s negative yield. BIO’s earnings surpassed estimates in all the trailing four quarters, the average being 66.9%.
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Here's Why You Should Hold Onto Neogen (NEOG) Stock for Now
Neogen Corporation (NEOG - Free Report) is well poised for growth in the coming quarters, backed by strength in its Food Safety and Animal Safety segments. Robust international performance also buoys optimism. However, stiff competition and mounting operating expenses do not bode well.
Over the past six months, this currently Zacks Rank #3 (Hold) stock has declined 17.6% compared with the 18.1% fall of the industry and the 4.7% decrease of the S&P 500.
The renowned food and animal safety products provider has a market capitalization of $3.75 billion.
Over the past five years, Neogen registered earnings growth of 8.6%, ahead of the industry’s 8.3% rise. NEOG projects 13.6% growth for next year compared with the industry’s growth projection of 20.8%.
Let’s delve deeper.
Key Catalysts
Animal Safety Business Grows Well: Animal Safety revenues in the fiscal second quarter 2022 were up 10.3% (10% organically) year over year. The upside can be attributed to strong growth in the veterinary instruments line (up 30%), which primarily includes needles and syringes, and the animal care line (up 18%), driven by the relaunch of ThyroKare supplement in February 2021 and strength in the equine and companion animal markets that returned to the pre-pandemic demand levels.
International Business Holds Solid Ground: Neogen’s international business reported impressive results for second-quarter fiscal 2022. NEOG’s international operations registered 20% growth in sales in the fiscal second quarter. Revenues from NEOG’s worldwide animal genomics business increased 8% in the same period on a year-over-year basis. The upside was primarily driven by continued strength in the beef and dairy cattle, sheep and poultry markets.
Strategic Partnership Deals Look Encouraging: Of late, Neogen inked a series of partnership deals, expected to aid its segmental growth as well as international expansion.
In December 2021, Neogen entered into an agreement with 3M to combine the latter’s Food Safety Business with its existing operations. This merger is projected to establish an innovative leader in the food safety sector, with a broad product range and a strategic focus on the category's long-term growth opportunities. The transaction (slated to close by the end of the third quarter of 2022) will allow Neogen to extend its food safety offering, particularly in the areas of indication testing and pathogen detection, complementing its existing microbiology lines.
Downsides
Mounting Operating Expenses: During the fiscal second quarter, Neogen’s sales and marketing expenses rose 19.5%, administrative expenses increased 85.5%, and research & development expenses climbed 6.8% from the year-ago quarter’s figures, respectively. The rise in operating expenses pushed up the operating costs 41.7% year over year.
Tough Operating Landscape: Neogen faces intense competition from companies ranging from small businesses to divisions of large multinational companies. Some of these organizations have substantially greater financial resources than NEOG.
Historically, Neogen has faced intense competition resulting from the development of new technologies by the company’s competitor which could affect the marketability and profitability of Neogen’s products.
Estimate Trend
The Zacks Consensus Estimate for Neogen’s fiscal 2022 earnings is pegged at 66 cents, suggesting a 15.8% rise from the year-ago fiscal’s reported number.
The Zacks Consensus Estimate for fiscal 2022 revenues is pegged at $527.9 million, indicating a 12.7% increase from the fiscal 2021 reported figure.
Key Picks
A few better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .
McKesson, currently carrying a Zacks Rank #2 (Buy), reported third-quarter fiscal 2022 adjusted EPS of $6.15, which beat the Zacks Consensus Estimate of $5.38 by 14.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 49.4% compared with the industry’s 6% growth in the past year.
AMN Healthcare, presently sporting a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. AMN surpassed earnings estimates in all the trailing four quarters, the average being 19.5%.
The stock has outperformed its industry over the past year, gaining 18% versus the 56.8% industry decline.
Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate 11.9%. It currently has a Zacks Rank of 2.
Bio-Rad has an earnings yield of 2.3% came against the industry’s negative yield. BIO’s earnings surpassed estimates in all the trailing four quarters, the average being 66.9%.