Neogen Just Posted Two Major Acquisitions Weeks Ahead of Earnings

NEOG closed a $5.3 billion deal with 3M on Tuesday

Dec 16, 2021 at 12:54 PM
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Neogen Corporation (NASDAQ:NEOG) is an international food safety company that provides test kits and relevant products to detect dangerous substances in food worldwide. NEOG operates a product line of over 100 drug detection test kits worldwide for the detection of about 300 abused and therapeutic drugs in animal treatment.

On Thursday, Dec. 9, Neogen announced the acquisition of a companion animal genetic testing company, Genetic Veterinary Sciences (GVS) which provides genetic information that enables optimal genetic health for dogs, cats, and birds. Subsequently, in even bigger news on Dec. 14, Neogen and 3M (MMM) confirmed the completion of a definitive agreement to combine 3M's food safety business with NEOG in a deal worth about $5.3 billion. According to the press release, "the combination will create an innovative leader in the food safety sector with a comprehensive product range and a strategic focus on the category’s long-term growth opportunities."

Looking slightly ahead, Neogen is expected to release its fiscal second-quarter earnings report before the open on Tuesday, Dec. 21, and then discuss the report via a conference call midday that day. Wall Street analysts anticipate that the food safety company’s earnings will come in at $0.17 per share.

The news has helped NEOG climb back up the charts, after late-November pullback staged a sharp bounce off a familiar floor at the $39 level. The security has added over 12% during this week alone, and is set for its highest close since early November. 

Fundamentally speaking, NEOG is incredibly overvalued. The company has only increased revenues 21% since fiscal 2018, which is underwhelming given the stock’s high price-sales ratio of 8.87. In addition, NEOG trades at very rich price-earnings ratio of 69.31 and has a high forward price-earnings ratio of 58.14, which does not seem justifiable given the firm's bottom-line growth rate in recent years.

Between fiscal 2018 and fiscal 2020, NEOG experienced a 1.6% decrease in net income after reporting back-to-back annual declines. Furthermore, Neogen has only increased its net income an underwhelming 4.4% since fiscal 2020. Overall, the only significant positive aspect of the company’s fundamentals lies in NEOG's balance sheet, which holds $400.88 million in cash and just $2.41 million in total debt.


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