Neogen (NEOG-Q)

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

NEOG operates as a products and service provider for food and animal safety and is now trading at 29x times' Forward P/E. In the last few years, sales growth has been healthy, with 5-year sales growaround 18%. Having said that, based on consensus estimates, sales are expected to grow by 6% over the next few years. The balance sheet is leveraged with net debt of $662M and  net debt/EBITDA of 3.1x. The negative free cash flow comes as the company is currently reinvesting heavily to pursue growth, but this may not show up in the intermeditate term: as noted expected growth over the next few years is only around 6%; EPS dipped in 2023 with inflation and labour pressures, but on an adjusted earnings basis an EPS recovery (but still just back to prior levels) is expected in 2024 and 2025. Still, we think there are better opportunities in the current market.
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Now's the time to own companies that make products or concrete services with real earnings. Yesterday, 3M said it will spin off its food safety business and merge with NEOG, another food safety company that flies under the radar. He likes it, especially after this pure-play merger. Both stocks have since rallied since the news.