Neogen Suffers From Competitive Pressure, Macroeconomic Woes

Neogen's NEOG vast international trade is impacted by global macroeconomic issues. Also, a tough competitive landscape weighs on the stock. NEOG stock carries a Zacks Rank #4 (Sell).

Neogen's international business continues to be affected by currency movements.

The current macroeconomic environment has adversely impacted Neogen's financial operations. Governments and insurance companies continue to look for ways to contain the rising cost of healthcare. This might put pressure on players in the healthcare industry, with Neogen being no exception.  Although the company is gradually coming out of the impact of the two-and-a-half-year-long pandemic, deteriorating international trade, with global inflationary pressure leading to a tough situation related to raw material and labor cost as well as freight charges, and a higher interest rate have put the medical device space in a tight spot.

With sustained macroeconomic pressure, the company may struggle to keep its cost of revenues and operating expenses in check. In fiscal 2024, sales and marketing expenses rose 29.5% year over year. Our model forecasts a 1.5% rise in the metric for fiscal 2025.

Further, Neogen faces intense competition from companies ranging from small businesses to divisions of large multinational companies. Some of these organizations have substantially greater financial resources than the company. Historically, Neogen has faced intense competition resulting from the development of new technologies by the company's competitors, which could affect the marketability and profitability of Neogen's products.

Factors That May Offset the Risks for NEOG Stock

Neogen is progressing well in terms of picking the right growth markets and gaining a bigger share of those markets. In the fiscal fourth quarter, the Indicator Testing, Culture Media & Other product categories benefited from double-digit growth in the Petrifilm product line as well as solid growth in culture media and food quality nutritional analysis. Additionally, the Vet Instruments and Disposables product line witnessed solid core growth. In the Animal care and other product category, core growth was led by higher sales of vitamin injectables and Biologics products.

The company is expanding well in other geographies. The company is seeing double-digit sales growth in Latin America, with strong performance across most key product categories.  The business in Europe and Asia Pacific grew in low single digits and mid-single digits, respectively, with strength in Culture media, Petrifilm, General Sanitation and Sample Handling.

Key Picks

Some better-ranked stocks in the broader medical space are Intuitive Surgical ISRG, TransMedics Group TMDX and Boston Scientific BSX. While Intuitive Surgical and TransMedics sport a Zacks Rank #1 (Strong Buy) each, Boston Scientific currently carries a Zacks Rank of 2 (Buy).

Intuitive Surgical's shares have surged 55.4% in the past year. Estimates for the company's earnings have remained constant at $6.67 per share for 2024 in the past 30 days.

ISRG's earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 8.97%. In the last reported quarter, it posted an earnings surprise of 16.34%.

Estimates for TransMedics' 2024 earnings per share have moved up 48.1% to $1.20 in the past 30 days. Shares of the company have risen 174.1% in the past year compared with the industry's 9.2% growth.

TMDX's earnings surpassed estimates in each of the trailing four quarters, the average surprise being 287.50%. In the last reported quarter, it delivered an earnings surprise of 66.67%.

Estimates for Boston Scientific's 2024 EPS have increased 1.7% to $2.40 in the past 30 days. In the past year, shares of BSX have risen 46% compared with the industry's 9.2% growth.

In the last reported quarter, BSX delivered an earnings surprise of 6.90%. BSX's earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.18%.

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