Neogen Corp NEOG recently announced the acquisition of the entire range of rodenticide assets of Virbac Corp, the North American subsidiary of France-based Virbac Group, a global animal health company. However, the terms of the agreement have not been disclosed.
The acquisition will expand Neogen’s rodenticide business particularly in overseas markets. Virbac’s rodenticide business has a strong clientele that includes large retail and Originial Equipment Manufacturer (OEM) customers.
According to Neogen, the addition of Virbac’s rodenticide products will help it to effectively address the needs of its agricultural and food industry customer base. These customers utilize a product rotation program that uses several different active ingredients in a year.
Virbac’s key rodenticide active ingredient not only complements Neogen's existing active ingredients but also has 40 regulatory approvals for a variety of formulations in the U.S., Canada and Mexico.
We believe the acquisition will boost Neogen’s share in the rodenticide market. In the recently reported second quarter of fiscal 2016, rodenticide sales surged 69% driven by higher contract manufacturing revenues and retail market share gains. A new distribution agreement with a large milk equipment manufacturer (GEA) in the commercial dairy industry also drove results.
We believe that increasing global footprint (China, Mexico, India) and new regulations of Food Safety Modernization Act (FSMA) are key long-term catalysts for Neogen.
However, an unfavorable foreign exchange rate will continue to raise concern in the near term. Operating margin is also expected to remain under pressure owing to adverse product mix as well as impact from acquisitions, apart from the foreign exchange woes.
Zacks Rank & Key Picks
Currently, Neogen carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the same sector are Abaxis Inc ABAX, ICU Medical Inc ICUI and Nxstage Medical Inc NXTM. All the stocks sport a Zacks Rank #1 (Strong Buy).
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