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Profit Potential or Red Flags? Evaluating Neogen (NEOG) for Investors

Neogen Corporation's (NEOG) latest quarter’s earnings release revealed weak financials and strategic challenges in its Genomics division, prompting a reassessment of fiscal 2024 projections. Given this, should investors now decide to load up on its shares or heed potential red flags? Read more to find out...

Recently, Neogen Corporation (NEOG) disclosed its fiscal 2024 second-quarter earnings, unveiling sales of $229.63 million, a marginal year-over-year dip. Moreover, its adjusted EBITDA declined 14% from the year-ago value to $55.10 million, while adjusted EPS was $0.11, down 27.7% year-over-year.

Furthermore, the company’s adjusted net income decreased 20.7% from the prior year’s period to $24.86 million. Due to this perspective, coupled with additional challenges arising from the strategic realignment of the Genomics business, the company has adjusted its fiscal 2024 revenue forecast to $935 million-$955 million.

In addition, the company foresees adjusted EBITDA within the $230 million to $240 million range. Additionally, it projects total capital expenditures at around $130 million, with approximately $100 million explicitly allocated for integrating the former 3M Food Safety Division.

Shares of NEOG have plummeted 13.1% over the past month and 26% over the past six months to close the last trading session at $16.99.

Here are the other financial aspects of NEOG that could influence its performance in the near term:

Weak Historical Growth

NEOG’s net income and EPS declined at a CAGR of 42% and 54.2%, respectively, over the past three years. Moreover, the company’s levered free cash flow decreased at an 8.6% CAGR over the same time frame.

Mixed Valuation

In terms of forward Price/Sales, NEOG is trading at 3.90x, 2.6% lower than the industry average of 4.00x. However, its forward non-GAAP P/E of 31.26x is 63.7% higher than the industry average of 19.10x. Moreover, its forward EV/Sales of 4.61x is 27.1% higher than the 3.63x industry average.

Analysts Expect Bottom-Line Decline

The consensus revenue estimate of $938.16 million for the fiscal year ending May 2024 indicates a 14.1% year-over-year increase. However, the consensus EPS estimate of $0.54 for the ongoing period exhibits a 3.6% decline from the prior year. Moreover, the company missed its consensus revenue and EPS estimates in three of four trailing quarters, which is disappointing.

Lackluster Profitability

The stock’s trailing-12-month EBITDA margin of 21.95% is higher than the 5.00% industry average. However, its trailing-12-month gross profit margin of 50.93% is 10.9% lower than the 57.15% industry average.

Moreover, its trailing-12-month asset turnover ratio and trailing-12-month cash per share of 0.20x and $0.95 are 48.7% and 24.5% lower than the industry averages of 0.39x and $1.26, respectively.

POWR Ratings Exhibit Bleak Prospects

NEOG’s weak outlook is apparent in its POWR Ratings. The stock has an overall rating of D, which translates to Sell in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. NEOG has a D grade for Momentum. It is trading below its 50-day and 200-day moving averages of $17.94 and $18.92, respectively. In addition, the stock has a C grade for Stability, evidenced by its 24-month beta of 1.32.

NEOG is ranked #42 out of 46 stocks in the Medical - Diagnostics/Research industry. Click here to access NEOG’s Growth, Value, Sentiment, and Quality ratings.

Bottom Line

Considering NEOG’s lackluster performance in its latest quarter, diminished stability, suboptimal profitability, and analysts expecting a bottom-line decline for the fiscal year ending May 2024, it seems wise to exercise caution and refrain from investing in NEOG for the time being.

How Does Neogen Corporation (NEOG) Stack Up Against Its Peers?

While NEOG has an overall grade of D, equating to a Sell rating, you may check out these B (Buy) stocks within the Medical - Diagnostics/Research industry: Bruker Corporation (BRKR), Semler Scientific, Inc. (SMLR) and Harvard Bioscience, Inc. (HBIO). To explore more Medical - Diagnostics/Research stocks, click here

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook > 

NEOG shares were trading at $16.79 per share on Friday morning, down $0.20 (-1.18%). Year-to-date, NEOG has declined -16.51%, versus a 0.64% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.


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