Neogen Corporation
NEOG
is gaining from strong performance across its two business segments. The Soleris product line and Megazyme acquisition contributed to growth in the Food Safety business. Growth in the Animal Safety business was led by strength in veterinary instruments and animal care lines. However, escalating costs and macroeconomic challenges raise apprehension.
In the past year, the Zacks Rank #3 (Hold) stock has plunged 49.1% compared with a 32.9% fall of the
industry
and a 12.4% drop of the S&P 500.
The renowned food and animal safety products provider has a market capitalization of $2.51 billion. The company’s earnings for the fiscal third quarter missed the Zacks Consensus Estimate by 13.3%.
In the past five years, the company registered earnings growth of 8.6% compared with the industry’s 8.8% rise and the S&P 500’s 13.4% increase.
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Let’s delve deeper.
Factors At Play
Animal Safety Business Grows Well:
During the third quarter of fiscal 2022, Animal Safety revenues were up 12% year over year. The upside can be attributed to strong growth in the veterinary instruments line (up 43%) and the animal care line (up 12%). With additional sales from the acquisition of CAPInnoVet and Genetic Veterinary Sciences, Animal Safety organic sales rose 9% in the quarter under review.
Genomic services reported through the Animal Safety segment increased by 11%. The growth primarily resulted from the Australia operation, an increased volume in beef, cattle, and sheep testing resulting from improved economic conditions in these markets and newly-won business.
Food Safety Sales Growth Continues:
Neogen continues to see rising revenues from the Food Safety business. For the fiscal third quarter, the company registered Food Safety revenues growth of 7% year over year. The segment’s revenues were positively impacted by the acquisition of Megazyme, an Ireland-based producer of food quality and nutritional analysis products. The Soleris product line continued to gain market share on robust equipment sales growth.
The upside in the Food Safety business was also driven by strong growth across the company’s diagnostics portfolio, which includes a rise of 12% in allergen test kits and an 11% increase in culture media.
Product Launches:
Neogen is focusing on product launches to strengthen its business on a global scale. This month, the company launched the Prozap Gamma-Defense Insect Control Solution for poultry producers. The novel solution will control litter beetles, flies, fleas, ticks and other listed pests. In May 2022, the company, in collaboration with Gencove, launched InfiniSEEK – an innovative, cost-effective solution for whole genome sequencing and targeted SNP analysis.
Other launches include the Prozap Protectus Pour-On Insecticide – IGR, the Synergize RTU and the K-Blue Luminescent, to name a few.
Downsides
Sales Performance Discouraging:
Neogen’s fiscal third-quarter revenues missed the Zacks Consensus Estimate. Revenues from China declined by 17%, affected by the country’s Zero COVID-19 strategy. Neogen’s Brazilian operations saw a 2% decline in revenues due to lower sales of dairy drug residue test kits.
Mounting Operating Expenses:
During the fiscal third quarter, Neogen’s sales and marketing expenses rose 14.9%, whereas administrative expenses increased 65% and research & development expenses surged 8% from the year-ago quarter, respectively. These mounting operating expenses flared operating costs by 34% year over year.
Macroeconomic Woes:
The current macroeconomic environment across the globe has adversely affected Neogen’s financial operations. The ongoing supply-chain challenges have been affecting the company’s capacity to deliver products to customers and increasing costs. Neogen’s international business also remains susceptible to unfavorable foreign exchange movements.
Estimate Trend
The Zacks Consensus Estimate for Neogen’s fiscal 2022 earnings is pegged at 61 cents, suggesting a 7% rise from the year-ago reported number.
The Zacks Consensus Estimate for fiscal 2022 revenues is pegged at $525.40 million, indicating a 12.2% increase from the year-ago reported figure.
Key Picks
A few better-ranked stocks in the broader medical space are
Alkermes plc
ALKS
,
AMN Healthcare Services, Inc.
AMN
and
Medpace Holdings, Inc.
MEDP
.
Alkermes has an estimated long-term growth rate of 25.1%. Alkermes’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%. It currently carries a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Alkermes has outperformed the industry in the past year. ALKS has gained 16.2% against the industry’s 42% decline in the said period.
AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently flaunts a Zacks Rank #2.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 7.8% against the industry’s 53.5% fall.
Medpace has a historical growth rate of 27.3%. Medpace’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%. It currently has a Zacks Rank #2.
Medpace has outperformed its industry in the past year. MEDP has declined 19.6% compared with the industry’s 53.5% fall.
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