Keeping in line with its global expansion strategy, Neogen Corp. NEOG recently announced the acquisition of assets of Sterling Test House, a leading commercial food testing laboratory based in southwest India. The laboratory, located in Cochin in the State of Kerala, will serve as a base for the company's new operations in India.
With this acquisition, Neogen plans to establish a strong presence in India. We note that India is witnessing higher demand for better quality food from a rapidly expanding middle class population. We believe that this will bolster Neogen’s long-term strategy of accelerating revenue growth in critical global food safety markets.
Incorporated in 1990, Sterling Test House provides food safety and water quality testing for major hotels and restaurants in its home region, as well as safety and quality analysis for the country's expanding nutraceutical market, and growing food export businesses.
Notably, Sterling Test House is one of the first testing companies in India to earn full National Accreditation Board for Testing and Calibration Laboratories accreditation, which enables the laboratory to perform services for the full range of testing customers. Sterling Test House is also fully compliant with the Indian Food Safety Standards Act for food safety testing.
Post-acquisition, Sterling will be part of Neogen's wholly owned subsidiary – Neogen Food and Animal Security (India) Private Limited. Other terms of the agreement have been kept under wraps.
We note that acquisitions are an important part of Neogen’s growth strategy, which have been driving the company’s top line. Notably, in the recently concluded third quarter of fiscal 2015, revenues from Neogen’s Food Safety business surged 14.1%, aided by the BioLumix acquisition made in Oct 2014.
Animal Safety revenues also improved 7% year over year, significantly driven by robust performance from the Chem-Tech agricultural insecticides business acquired in Jan 2014.
We believe that Neogen’s strategy of acquiring successful distributor partners in Europe, Brazil and most recently China and India, will help the company create a direct presence in important global markets. Moreover, in the next several months, Neogen plans to combine BioLumix with its closely related Soleris technology, which will greatly enhance this business.
However, Neogen continues to face currency headwinds which make its products less competitive internationally.
Stocks to Consider
Currently, Neogen carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the medical products industry include Bio-Rad Laboratories Inc. BIO, Hospira Inc. HSP and Vascular Solutions Inc. VASC. All these stocks sport a Zacks Rank #1 (Strong Buy).
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