Here's Why You Should Retain Neogen (NEOG) Stock for Now
Neogen Corporation NEOG is well poised to gain in the coming quarters, backed by strong performance across its Animal Safety and Food Safety segments. Recent product launches look encouraging. However, escalating costs and stiff competition raise apprehension.
In the past year, the Zacks Rank #3 (Hold) stock has plunged 49.7% compared with a 38.2% fall of the industry and a 13.2% drop of the S&P 500.
The renowned food and animal safety products provider has a market capitalization of $3.95 billion. The company’s earnings for the fiscal first quarter surpassed the Zacks Consensus Estimate by 6.3%.
In the past five years, the company registered an earnings growth of 6.2% compared with the industry’s 10.2% rise.
Let’s delve deeper.
Factors At Play
Food Safety Sales Growth Continues: Neogen continues to see rising revenues from the Food Safety business. For second-quarter fiscal 2023, Food Safety revenues increased 140.3% year over year, consisting of 6.3% core growth and 140.5% from acquisitions.
The sales of Culture Media & Other category grew mid-single digits driven by increases in Neogen’s analytics platform and other culture media products. The recently acquired Petrifilm product line performed well in the reported quarter.
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 and 2.4% from acquisitions. Core growth was led by NEOG’s portfolio of biosecurity products.
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The company registered strong sales in the rodent control, insect control and disinfectants category, up low double digits on a core basis in the fiscal second quarter. The growth was driven by share gains in the animal protein market and sales of dairy hygiene products as well as new insect control product introductions.
Product Launches: Neogen, of late, has been focusing on product launches to strengthen its business on a global scale.
In September 2022, Neogen launched its Veratox VIP assay to detect cashew allergens. The same month, the company launched its new Encompass platform for bovine genomic results management and visualization. In October, Neogen launched COMPANION RTU, a ready-to-use formulation of its COMPANION disinfectant. In June 2022, Neogen launched the Prozap Gamma-Defense Insect Control Solution for poultry producers. In May
Downsides
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. 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.
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 $831.5 million, indicating a 57.7% increase from the year-ago reported figure.
Key Picks
Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Progyny PGNY and Merit Medical Systems, Inc. MMSI.
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 lost 10.6% compared with the industry’s 30.3% decline in the past year.
Progyny, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 21.1%. PGNY’s earnings surpassed estimates in all of the trailing four quarters, the average beat being 233.75%.
PGNY has gained 6.8% against the industry’s 42.6% decline in the past year.
Merit Medical, carrying 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 13.7% against the industry’s 8.7% decline in the past year.
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Merit Medical Systems, Inc. (MMSI) : Free Stock Analysis Report
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Neogen Corporation (NEOG) : Free Stock Analysis Report
Progyny, Inc. (PGNY) : Free Stock Analysis Report
