Neogen Hurt by Weakness in Animal Safety, Currency Woes

On Mar 28, we issued an updated research report on Neogen Corporation NEOG. The company’s animal genomic business has developed rapidly with worldwide growth of 8% in the fiscal second quarter. However, the company operates in a highly competitive landscape. The stock currently carries a Zacks Rank #4 (Sell).

Shares of Neogen have underperformed its industry over the past six months. The stock has declined 20.9% in comparison with the industry’s 4.8% fall.

Neogen exited the third quarter of fiscal 2019 on a disappointing note, affected by the company’s Animal Safety segment’s poor performance. Chaotic economic conditions in the production animal market, the U.S.-China trade war along with lower sales to animal protein market distributor partners resulted in such a disappointing performance.

Neogen Corporation Price

Neogen Corporation Price | Neogen Corporation Quote

Adverse currency movement also dented fiscal third-quarter revenues by $2.5 million. The negative currency movement effect was majorly due to weakening currencies against the dollar in Brazil and the U.K.

On a positive note, the company is consistently registering strength in international business on solid performance by the core Food Safety and genomic product lines. In the fiscal third quarter, revenues from international sources (accounting for 41% of total revenues) increased 9% from a year ago. Neogen Europe business, which is segregated into three divisions, performed well.

Revenues from diagnostic business, basically comprising the Food safety diagnostic test kit business, were up 8% year over year in the last-reported quarter. Meanwhile, culture media and cleaner and disinfectant sales were up 15% from the prior quarter. Per management, the company witnessed revenue growth in Europe, Brazil, Mexico, China and India along with other geographies in the quarter under review.

Stocks to Consider

Some better-ranked stocks in the broader medical space are Stryker Corporation SYK, Penumbra, Inc., PEN, and Varian Medical Systems, Inc VAR. Notably, each of these stocks currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker’s long-term earnings growth rate is projected to be 10%

Penumbra’s long-term earnings growth rate is expected to be 20.9%.

Varian’s long-term earnings growth rate is estimated to be 8%.

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