Neogen NEOG is well positioned to gain from its extensive global foothold and diverse product mix. The company’s long-term growth strategy looks impressive. Yet, global macroeconomic issues continue to put pressure on Neogen’s vast international trade. The stock carries a Zacks Rank #3 (Hold).
Neogen exited the third quarter of fiscal 2023 with better-than-expected earnings. The company delivered core growth across all product categories, banking on a diversified portfolio, with the strongest growth reported in sales of biosecurity products. The performance of the Food Safety business was strong, driven by several long-term secular tailwinds.
Sales in Culture Media & Other category grew in high teens on a core basis, benefiting from a large order from a vaccine manufacturer. Within Bacterial & General Sanitation, microbial testing products witnessed solid growth. Within the Animal Safety segment, sales of its biosecurity products registered the strongest core growth, led by insect control share gains in the animal protein market.
The expansion of both margins is also encouraging. Additionally, the recent acquisition of Corvium seems a strategic move. It will allow Neogen to embed Neogen Analytics software in the market through the launch of additional software modules and digital mapping capabilities in the near future.
Neogen Corporation Price
Meanwhile, Neogen, in its mission to be the leading company in the development and marketing of solutions for food and animal safety, follows a vision or a growth strategy consisting of the following elements — increasing sales of existing products, introducing new products and product lines, expanding international sales, and acquiring businesses and forming strategic alliances.
Going by the first leg of the growth strategy, Neogen is progressing well in terms of picking the right growth markets and gaining a bigger share in these markets. In the fiscal third quarter, sales of Bacteria & General Sanitation products were up, led by growth in microbial testing products.
In terms of the second part of the growth strategy, Neogen has been doing well with its strong R&D activities.
With respect to the third leg of international growth, the company is expanding well in other geographies. International sales, which contributed 49.6% to total revenues, rose 112.6% in the fiscal third quarter.
With respect to the final strategy of acquisitions and forming strategic alliances, the company is progressing well. During the fiscal third quarter, Neogen completed the strategic bolt-on acquisition of Corvium, a SaaS provider behind its Neogen Analytics Platform, accelerating the company’s organic data strategy. In 2022, Neogen completed its merger with 3M Company’s Food Safety business. Neogen acquired Thai-Neo Biotech Co., Ltd. — a longstanding distributor of its food safety products in Bangkok, Thailand — in July 2022. The acquisition complements Neogen’s operations in India, China, and Australia and expands its access to the fast-growing Asia/Pacific food safety market.
On the flip side, during the fiscal third quarter, key product lines in the Food Safety business were affected by the production backlog situation at Neogen’s transition manufacturing partner. Further, within Food Safety product categories, Natural Toxins, Allergens, & Drug Residues witnessed a slight core revenue decline due to the discontinuation of the product line of drug testing kits for international dairy markets.
The Animal Safety side of the company’s business suffered from a difficult comparison against extremely strong market growth in Q3 last fiscal, and some destocking by the company’s channel partners.
Mounting costs and expenses do not bode well. The ongoing supply chain disruptions and inflationary pressure continue to pose challenges for the company.
Shares of Neogen have underperformed the industry over the past year. The stock has declined 43.2% compared with the industry’s 36.1% fall.
IDEXX Laboratories, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 18%. IDXX’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 3.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
IDEXX Laboratories has lost 0.9% compared with the industry’s 11.3% decline in the past year.
Henry Schein, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 8.1%. HSIC’s earnings surpassed estimates in three of the trailing four quarters and matched the same in the other, the average beat being 2.9%.
Henry Schein has lost 8.6% compared with the industry’s 2% decline over the past year.
Avanos, carrying a Zacks Rank #2 at present, has an estimated growth rate of 1.8% for 2023. AVNS earnings surpassed estimates in all the trailing four quarters, the average beat being 11%.
Avanos has lost 6% compared with the industry’s 11.3% decline over the past year.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.