NEOG just received a very strong buy recommendation from this stock newsletter, biff
Subj: Pick of Week: NEOG
Date: 03/23/2000 11:36:59 AM Eastern Standard Time
From: editor@analystgroup.com (investor-list)
- analystgroup.com
******Undervalued Dog************* Vol. 5, No. 80, March 23, 2000
analystgroup.com
A Leading Provider of Micro-Cap Stock Advisory Newsletters
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analystgroup.com Initiates Coverage of Neogen Corporation (NasdaqNM:NEOG)with a "Strong Buy" Rating
Neogen Corporation (NasdaqNM:NEOG)
Recent Price: $7.25
52-Week Range: $5 to $7.81
Daily Volume (3-month avg):35.3K
Daily Volume (10-day avg): 60.0K
Market Capitalization: $42.8M
Shares Outstanding: 5.91M
Float: 5 M
Book Value (mrq): $4.21
Earnings (last 12 months): $0.32
Earnings (last quarter): $0.03
Price/Book (mrq): 1.80
Industry Price/Book: 17.1
Price/Earnings (ttm): 21.9
Industry Price/Earnings: 43.3
Price/Sales (ttm): 1.80
Industry Price/Sales: 31.1
Sales (last 12 montes): $21.3M
Insider Holding: 15%
Institutional Holding: 8%
Stock Rating: Strong Buy
Target Price: $25 to $30.
Company Website: neogen.com
Investment Summary
- We rate NEOG a strong buy, because NEOG is becoming the dominant global company in the development and
marketing of products to control residues and improve quality for the food, agriculture, seafood, pharmacologic
and
environmental industries. To accomplish that mission, the company has built on the success of its initial products
and added complementary product lines. We expect the company will grow its sales and earnings between 20% to
30% annually.
- What makes this our classic underfollowed and undervalued situation is the following: the company had a
not-too-good earning report last quarter: $0.03 per share. In fact, it's pretty good compared to so many
biotech companies that are losing huge amount of money. The lower earnings were caused by a delay of FAD
approval for a new product. Right now they don't have any problem to ship their products and we expect they
will have
a solid earning reports in the coming quarters. Second, the company was sued by Vicam, L.P. and its president,
Jack Radlo. Early last year, the Court ruled in favor of NEOG in this lawsuit. Late last year, Vicam and Mr.
Radlo filed a motion for summary judgment, seeking to have all of
Neogen's tort claims and claims for damages dismissed. At the conclusion of a hearing on that motion, held on
January 10, 2000, the Court denied the motion and ruled that all of Neogen's claims for damages will go to
the jury for its verdict. We expect NEOG will recover $1 to $3 million dollars that will add up for its bottom line
- NEOG just acquired Acumedia Manufacturers Inc. of Baltimore, Md., an internationally-recognized producer of
culture medias, from IDEXX Laboratories, Inc., (Nasdaq: IDXX) of Westbrook, Maine. Acumedia has an
excellent reputation and an outstanding new FDA-licensed facility. We believe the business has a huge upside
potential in the $300 million culture media market. Acumedia had sales of about $3.5 million in its
last fiscal year as a subsidiary of IDEXX. However, we expect it will have sales of about $8-$10 million in the
first year after the acquisition, because NEOG has so many well-established distribution channels for these
products.
- We view NEOG as an excellent growth company with great potential for capital appreciation over both the short
term and the long term. The company strong fundamentals including $11.4 million in the bank. Also the
company announced they will buy 750,000 shares back on the open market.
There is only one major brokerage that follows the company with a "strong buy" recommendation. Biotech
companies typically trade at a market valuation of 20x to 30x sales and, therefore, NEOG appears to trade at a
deep discount to its peer group. Over the next 12 months, we are
projecting a target price of $25- $30, or 5x to 6x projected sales, based on 5.91 million shares outstanding. We
believe this stock's fundamentals and growth potential support this fair market valuation.
Therefore, NEOG is rated "strong buy" with a 6 to 12-month target price at $25-$30.
Company Profile:
Neogen is a worldwide leader in the development and marketing of diagnostic test kits for the detection of
harmful residues in food and anima feed products. The Company's food safety segment consists primarily of
diagnostic test kits and related products marketed to food producers and processors to aid in the detection of
foodborne bacteria, natural toxins, food allergens drug residues, pesticide residues, plant disease
infections and levels of general sanitation. The Company's animal safety segment is primarily engaged in the
production and marketing of products dedicated to animal health. These products include more than 250 different
veterinary instruments used to administer precise amounts of antibiotics and vaccines helping to reduce drug r
esidues in meat and milk supplies. This segment also includes a line of consumable products marketed
primarily to veterinarians and distributors serving the professional equine industry.
Neogen's product offerings have grown to include:
- Test kits and reagents for the detection of dangerous foodborne bacteria, such as E. coli O157:H7, Salmonella,
Campylobacter and Listeria, and rapid sanitation testing equipment designed to help ensure the safety
and quality of food products;
- Lexington-based line of immunoassay diagnostic kits for detection of drug residues, toxins, bacteria and
biologically-active substances for the animal sport and pharmacologic markets. The company's Lexington Division
is also home to Neogen's extensive line of quality over-the-counter and ethical products for the equine health
market;
- Schiller Park-based Ideal Instruments is a Neogen subsidiary that manufactures and markets more than 200
durable and disposable veterinary instruments designed for more accurate drug delivery to help reduce residues in
meat and milk products;
- In 1998, Neogen completed the acquisition of substantially all of the assets of Tampa-based Vetoquinol U.S.A.,
including its USDA-licensed
production facility and two licensed immunostimulant products. Neogen's Lexington-based equine health line was
strengthened by the addition of Vetoquinol's primary product, EqStim¶©, used by veterinarians to stimulate
a horse's immune system to fight off infections;
- In early 2000, Neogen acquired the Baltimore-based Acumedia Manufacturers, Inc. The synergistic acquisition
united Neogen, a leader in the development and marketing of rapid test kits to detect dangerous foodborne
microorganisms, and Acumedia, a leader in the development and marketing of culture media for many uses,
including media used to grow microorganisms to detectable testing levels. At the time of purchase, more than 200
of Neogen's food safety customers already used Acumedia products.
INVESTMENT OPINION
The stock has been traded actively in the past ten days (Daily Volume (3-month avg): 35.3 K vs Daily Volume
(10-day avg): 60.0 K), suggesting accumulation is going here! All technical indicators of short-, medium-,
and long-term are bullish. We see substantial appreciation potential of the stock price both from earning growth
and increased recognition.
We believe that the stock is grossly undervalued and is ready move up. One factor that has contributed to the
decline of the stock in the past was a patent lawsuit. On March 14 , 2000, a federal court this week
reaffirmed its ruling and Judgment of earlier this year that Neogen Corporation's (Nasdaq: NEOG) aflatoxin
detection product, the AC-5 (formerly sold under the name ``NPC') does not infringe a patent licensed
to Vicam, L.P., a Watertown, Massachusetts company.
On Jan. 27, 2000, the U.S. District Court for the Middle District of
Florida entered Judgment in Neogen's favor on the patent infringement
issues, ruling in a lengthy written opinion that Neogen's product did not
infringe the patent held by Vicam, L.P. either literally or under the
doctrine of equivalents. The Court termed Vicam, L.P.'s literal
infringement contention as a ``groundless claim,' and also dismissed
Vicam, L.P.'s doctrine of equivalents infringement claim.
The stock has been trading in a narrow range of $5 to $7 in the past year.
We don't see much downside for the stock which is traded around $7 now.
We believe the stock is an outstanding investment opportunity and is at an
excellent buying price considering its short and long-term potential. Our
6-month to 12-month target price is $25-$30 with a "strong" rating.
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