Neogen: Safety first
Most U.S. companies are gazing into cloudy crystal balls, trying to figure out what 2009 holds for them. At Neogen (Nasdaq:NEOG), the first quarter of fiscal 2009 is in the books and the future doesn’t look too shabby for this maker of food and animal safety products.
Based in Lansing, Mich., Neogen has 26 years under its belt fulfilling “A Mission That Matters,” of making the world safer for people and animals. Given the headline-grabbing woes of contaminated food such as Salmonella-laden vegetables in fast-food restaurants and E. coli-tainted beef reaching supermarkets, it’s easy to see why there’s interest in Neogen's products.
A report this summer from The Freedonia Group said U.S. demand for food safety products is likely to increase 6.5% a year to become a $3.2 billion market by 2012.
Neogen operates two divisions: food safety, which markets testing products including kits to detect such substances as foodborne bacteria, spoilage and allergens; and animal safety, marketing diagnostic and pharmaceutical products, nutritional supplements, veterinary supplies and disinfectants.
Few companies can boast a stock price rising this year, but Neogen is hanging on: up 1.32% year to date. Over the past two years, the share price has nearly doubled. Neogen stock, which is thinly traded, hit a 52-week high of $31.95 on Sept. 19, while it dropped to a low of $20.35 on Jan. 22. On Wednesday, Neogen closed at $26.90.
According to Thomson Reuters, of four analysts covering Neogen, two rate it a “strong buy,” with another calling the stock a “buy” and another staying neutral. Recently Stephens Inc. and Craig-Hallum Capital added coverage of Neogen at “buy.” Thomson Reuters says the median price target is $35.
According to Thomson Reuters, for the past six quarters, earnings have come in mostly with upside surprises. Neogen — under the guidance of chairman and CEO James Herbert, who joined the company from the beginning — has raised prices to cover continuing increases in material costs.
For the three months ended Aug. 31, earnings per share of $0.25 handily topped last year’s $0.21. Neogen reported a 26% jump in revenue to $28.8 million as the company posted its 62nd consecutive profitable quarter from operations, with operating income rising 24%. Its animal division reported a 45% sales increase, as Neogen’s most recent acquisitions began to take hold — Kane veterinary products from August 2007), Canada’s Rivard detectable veterinary needles in December 2007 and DuPont disinfectants on June 30.
In fiscal 2008, Neogen said revenue topped $100 million for the first time, rising 19% to $102.4 million. Net income for the year ended May 31 was $12.1 million, up 33% from the year before, as earnings per share climbed 26.5% to $0.81. In fiscal 2008, about $40 million of revenue came from its international operations.
Over the summer, Neogen established a Mexican division and expanded its animal range with the acquisition of 14 disinfectant products from DuPont Animal Health Solutions. Neogen was added to the Russell 2000 index of small-cap stocks, and more recently was cited by Forbes magazine in its compilation of 200 best-run small companies.
Neogen had a 3-for-2 stock split in September 2007, to help meet demand for its shares. And while Neogen works to keep people and animals healthy, investors who can latch onto some of its 14.5 million shares outstanding might find it’s one that can breathe a little life into their portfolios.
