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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 to gain in the coming quarters, led by strong performance across its Animal Safety and Food Safety segments. Solid second-quarter 2023 performance buoys optimism. However, escalating costs and stiff competition raise apprehension.

In the past year, the Zacks Rank #3 (Hold) stock has plunged 42.3% compared with a 35.8% fall of the industry and a 7.8% drop of the S&P 500.

The renowned food and animal safety products provider has a market capitalization of $4.39 billion. The company’s earnings for the fiscal second quarter surpassed the Zacks Consensus Estimate by 287.5%.

In the past five years, the company registered an earnings growth of 6.2% compared with the industry’s 11% rise.

Let’s delve deeper.

Factors At Play

Q2 Upsides: Neogen exited the second quarter of fiscal 2023 with better-than-expected earnings and revenues. The company recorded sales growth across the Food Safety and Animal Safety segments. Sales in the rodent control, insect control and disinfectant category came in strong. The upside was driven by share gains in the animal protein market, higher sales of dairy hygiene products and new insect control product introductions.

Revenues in the vet instrument and disposable category were up in the mid-single digits on a core basis. The upside was led by strong market demand and additional sales to a large retail customer.

Animal Safety Business Grows Well:  Animal Safety revenues in the fiscal second quarter were up 8.4% year over year, consisting of 6.9% core growth, 2.4% from acquisitions and a foreign currency headwind of 0.9%. The core growth was led by the company’s portfolio of biosecurity products, driven largely by share gains in the animal protein market, sales of dairy hygiene products, and new insect control products. The company’s line of parasiticides, acquired in September 2021, and veterinary instruments reported an increase in market share gains.

Zacks Investment ResearchImage Source: Zacks Investment Research

Food Safety Sales Growth Continues: Neogen continues to see rising revenues from the Food Safety business. For second-quarter fiscal 2023, Food Safety revenues improved 140.3% year over year, consisting of 6.3% core growth and 140.5% from acquisitions.

The core growth was led by the Culture Media & Other category, where the company’s Petrifilm product line performed well, as did Neogen Analytics services. Customer demand increased significantly for the company’s software as a service that combines food safety analytics, data aggregation and digital services on a single platform. Within the Bacterial & General Sanitation category, the company’s AccuPoint general sanitation product line saw solid core growth, while in Natural Toxins, Allergens & Drug Residues, sales of aflatoxin test kits were up significantly from increased demand related to domestic and international grain harvests.


Mounting Operating Expenses:  In the fiscal second quarter, Neogen’s sales and marketing expenses rose 71.5%, whereas administrative expenses rose 240.6% from the prior-year quarter’s levels. Research & development expenses were up 58% from the year-ago quarter. Operating costs rose 149.8% year over year.

The company reported an operating loss of $7.7 million for the quarter under review compared to $12.5 million of operating profit in the year-ago period.

Competitive Landscape Tough: 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 the company. 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. 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

The Zacks Consensus Estimate for Neogen’s fiscal 2023 earnings is pegged at 53 cents, suggesting a 15.9% fall from the year-ago reported number.

The Zacks Consensus Estimate for fiscal 2023 revenues is pegged at $823.8 million, indicating a 56.3% increase from the year-ago reported figure.

Key Picks

Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , Cardinal Health, Inc. (CAH - Free Report) and Merit Medical Systems, Inc. (MMSI - Free Report) .

AMN Healthcare, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.9%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare has gained 5.4% against the industry’s 19.6% decline in the past year.

Cardinal Health, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11.6%. CAH’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average beat being 6.4%.

Cardinal Health has gained 48.7% against the industry’s 0.8% decline in the past year.

Merit Medical, flaunting a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average beat being 25.4%.

Merit Medical has gained 28.1% against the industry’s 0.8% decline in the past year.

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