Why at Least One Analyst Isn’t Chasing Neogen

Neogen Corp. (NASDAQ: NEOG) reported its fiscal first-quarter financial results before the markets opened on Monday morning. The company had $0.25 in earnings per share (EPS) on $74.86 million in revenue, compared to consensus estimates from Thomson Reuters of $0.27 in EPS on $76.35 million. The same period from the previous year had $0.24 in EPS on $67.60 million in revenue. In this report, the company reported organic growth of 10%, which contributed to a slight miss on the top and bottom lines.

Despite this miss, Janney believes that Neogen is positioned to continue its strong growth. An expanding international footprint, partnership with Illumina Inc. (NASDAQ: ILMN), passage of rules from the Food Safety Modernization Act (FSMA), and robust demand for rodenticides represent multiple levers to continue driving top-line growth.

In the earnings report, management highlighted the emergence of e-commerce as a meaningful percentage of Food Safety revenue. Representing 10% of Food Safety revenue, up from zero two years ago, e-commerce is particularly appealing to end-users who have a routine order schedule and know exactly what products they need.

DNA Testing growth was lower than Janney estimated at about 12%; however, management noted the recently announced Illumina partnership has not impacted revenue and order lumpiness. The firm believes the partnership will drive penetration in international markets and lead to industry-plus growth. Furthermore, panel pricing has fallen considerably over the past few years and may be stabilizing.

During the quarter, Neogen made two acquisitions, Lab M Holdings and Sterling Test House, for a combined $13 million. While it will be a minor contributor to revenue in the area of $650,000, Sterling represents a launchpad for additional opportunities in India. Management highlighted China and India as two key drivers of future growth.

The firm maintained its fair value estimate of $57 and Neutral rating, implying an upside of 16.25% from current prices.

Shares of Neogen were down 9.5% at $49.03 on Monday afternoon. The stock has a consensus analyst price target of $55.00 and a 52-week trading range of $38.74 to $62.70.

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