Neogen Corp NEOG recently took over Heywood, England-based Lab M Holdings – a provider of microbiological culture media and diagnostic systems. The company’s products are used in global food, water, industrial and clinical testing markets.
Per Neogen, the integration of Lab M’s products into its Acumedia product suite will position the company as the leading global provider of traditional microbiology tools. Acumedia offers dehydrated culture media for varied purposes, including traditional bacterial testing and growing beneficial bacteria.
The buyout will also help Neogen to offer advanced food safety diagnostics tools to its customers. Moreover, it will expand the company’s footprint in the international markets, as Lab M has a strong clientele in European Union, Middle East and India. Further, the Lab M acquisition is expected to boost Neogen’s Food Safety revenues in fiscal 2016 and beyond.
We note that acquisitions are an important part of Neogen’s growth strategy, which have been driving the company’s top line over the last few years. In the recently concluded fiscal 2015, acquisitions contributed $17.1 million to the company’s total revenues of $283.1 million, which increased 14% on a year-over-year basis.
Neogen’s Food Safety business recorded revenue growth of 13% from fiscal 2014, aided by the BioLumix acquisition made in Oct 2014. Animal Safety revenues gained a meaningful 16% year over year on the back of strength at the Chem-Tech agricultural insecticides business, which was taken over in Jan 2014.
Neogen also reported impressive fourth-quarter 2015 results. Earnings of 25 cents per share increased 25% on double-digit organic revenue growth and improvement in operating efficiencies. Revenues increased 17.6% year over year driven by synergies from the year-ago acquisitions, partially offset by impact from foreign exchange headwinds.
Neogen is striving to create a direct presence in important global markets through the acquisition of successful distributor partners in Europe, Brazil and China. During the last reported quarter, the company acquired assets of Sterling Test House, a leading commercial food testing laboratory based in southwest India.
The recent acquisition of Lab M and the earlier takeover of Sterling Test House are part of Neogen’s long-term strategy of accelerating revenue growth in critical global food safety markets. We also believe that the extension of its collaboration with Illumina ILMN will help Neogen’s products earn greater visibility in the international market, which in turn, should boost sales.
Zacks Rank & Stocks to Consider
Currently, Neogen has a Zacks Rank #3 (Hold).
Better-ranked stocks at the moment are NuVasive NUVA and OraSure Technologies OSUR. Both the stocks carry a Zacks Rank #1 (Strong Buy).
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