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Analyst Blog

Lansing, MA-based leading global developer of products for food and animal safety, Neogen Corporation (NEOG - Free Report) , recently announced the acquisition of United Kingdom-based Quat-Chem Ltd., a chemical company which develops, manufactures and sells agricultural, industrial, and food processing biocidal hygiene products.

However, the terms of the agreement have not been disclosed by the companies.

Meanwhile, the share price of Neogen scaled a new 52 week high of $64.24 following the news. However, the stock closed its trading session a tad lower at $63.05 on Dec 1, yielding a year-to-date return of roughly 11.6%. The trading volume for the session was 1.37 million shares.

Notably, an expected long-term earnings growth rate of 16.67% indicates the stock’s solid potential for further price appreciation in the recent future.

In the past one month, Neogen has outperformed the Zacks categorized Medical Products sub industry trend with respect to price performance. Notably, the company represents a positive return of 23.00%, much better than the sub-industry’s return of -2.83%.

However, the current year estimate trend for the stock is dismal, with one estimate going down in the past two months and no upward revision. Notably, Neogen’s current year estimates have inched down by a penny to $1.12 over the past two months.

Coming back to the deal, the acquisition strengthens Neogen’s biosecurity business which was initiated in 2003 with the acquisition of rodenticides, cleaners and disinfectants from ConAgra.

Notably, Quat-Chem manufactures disinfectant and cleaner products for dairy hygiene, poultry and swine biosecurity applications and has a strong clientele across the U.K., European Union, Middle East and Asia (China). Post the acquisition, Quat-Chem’s operations will be managed by Neogen's Scotland-based Neogen Europe subsidiary.

Our Take

The acquisition will strengthen Neogen’s rodenticide business and fortify its footprint overseas. We believe that expanding its global footprint and focusing on China are the key long-term catalysts for Neogen. Meanwhile, the global rodenticides market is projected to reach a worth of around $1.23 billion by 2022, multiplying at a CAGR of around 3.76% (Markets And Markets).

However, an unfavorable foreign exchange rate will continue to raise concern in the near term. Operating margin is also expected to remain under pressure owing to adverse product mix as well as impact from acquisitions, apart from foreign exchange woes.

Zacks Rank & Key Picks

Currently, Neogen carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the broader medical space include Baxter International Inc. (BAX - Free Report) , NxStage Medical Inc. (NXTM - Free Report) and IDEXX Laboratories, Inc. (IDXX - Free Report) . Notably, all the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Baxter International has a long-term expected growth rate of 12.31%. Notably, the company has a solid year-to-date return of roughly 14.36%.

NxStage Medical has a positive year-to-date return of roughly 9.3%. The stock represents a long-term expected growth rate of 18.33%.

IDEXX Laboratories represents a solid year-to-date return of almost 53.6%. The company has a long-term expected growth rate of almost 14.96%.

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