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 core growth in Food Safely and strong prospects in Animal Safety despite the near-term challenges of lower volumes and inventory levels in end markets. Weak solvency and stiff rivalry are a concern.
In the past three months, this Zacks Rank #3 (Hold) stock has gained 8.3% compared with 24.7% rise of the industry and a 17.8% increase of the S&P 500.
The renowned food and animal safety products provider has a market capitalization of $3.49 billion. The company has an estimated earnings growth rate of 38.2% for the fiscal 2025 compared with the industry’s 23%. In the trailing four quarters, NEOG delivered an average earnings surprise of 47.98%.
Let’s delve deeper.
Factors at Play
Animal Safety Has Strong Prospects: Neogen’s Animal Safety segment is gaining from strong performances of a complete line of consumable products marketed to veterinarians and animal health product distributors.
The Animal Safety business continues to grow, led by sales of vet instruments and disposables and a new line of business with a large retail customer. Within the biosecurity portfolio, Neogen continues to grow solidly in cleaners, disinfectants and rodenticides.
Food Safety Sales Growth Continues: The Neogen Food Safety segment is primarily engaged in the development, production and marketing of diagnostic test kits, culture media and related products used by food producers and processors to detect harmful natural toxins, foodborne bacteria, allergens and levels of general sanitation.
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Regarding the latest development, revenues in the Food Safety segment in the fiscal second quarter increased 1.9% from the prior year’s levels — including core growth of 0.7%. Core growth within the segment was led by the Bacterial & General Sanitation product category, which benefited from new business wins and increased distributor orders for the company’s pathogen detection products.
Product Launches: In the fiscal second quarter, the company launched its new ERP system and initiated the exit of its transition services agreements. The company has also launched the Veratox VIP assay for the detection of walnuts, the third assay in Neogen’s Veratox VIP line of enhanced quantitative ELISA products. In January 2024, the company launched the SureKill Gel Bait Pro Applicator, which allows users to easily target inconvenient and challenging areas while minimizing bait waste and innovating baiting protocols.
Earlier in August 2023, Neogen launched Igenity Enhanced Dairy, a new and progressive genomic data management tool. The same month, Neogen launched an extensive selection of new genetic tests through Paw Print Genetics and Canine HealthCheck solutions.
Downsides
Weak Solvency: Neogen exited the second quarter of fiscal 2024 with cash and investments of $230 million, down from $239 million at the end of the first quarter of fiscal 2024. At the fiscal second quarter’s end, the company had a total long-term debt of $887 million, nearly unchanged from the fiscal first-quarter level. The outstanding debt is much higher than the cash at hand, indicating weak solvency.
Currency Headwinds: Neogen’s international business continues to be impacted by currency movements. When the magnitude of the pandemic became evident and as it began moving around the world, there was a move toward the safety of the U.S. dollar, negatively impacting local currencies in the company’s international locations, particularly those where outbreaks were less controlled.
Estimate Trend
In the past 90 days, the Zacks Consensus Estimate for Neogen’s earnings for 2024 has moved down from 59 cents to 55 cents.
The Zacks Consensus Estimate for 2024 revenues is pegged at $939.5 million, suggesting a 14.2% rise from the 2023 reported number.
Other Key Picks
Some better-ranked stocks to consider in the broader medical space are Universal Health Services UHS, Integer Holdings Corporation ITGR and Acadia Healthcare ACHC.
Universal Health Services, carrying a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 4.4% for 2024. UHS’s earnings surpassed estimates in all the trailing four quarters, delivering an average surprise of 5.47%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
UHS’ shares have inched up 6.5% in the past year compared with the industry’s 11.8% rise.
Integer Holdings, presently carrying a Zacks Rank of 2, has an estimated long-term growth rate of 15.8%. ITGR’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 11.9%.
Integer Holdings’ shares have rallied 54.8% in the past year against the industry’s 3.5% decline.
Acadia Healthcare, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 10.4%. ACHC’s long-term earnings are expected to grow at 11.2%.
Acadia Healthcare’s shares have gained 7.5% in the past six months compared with the industry’s rise of 5.5%.
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Universal Health Services, Inc. (UHS) : Free Stock Analysis Report
Neogen Corporation (NEOG) : Free Stock Analysis Report
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Integer Holdings Corporation (ITGR) : Free Stock Analysis Report
