Neogen (NEOG)

Life sciences company Neogen (NASDAQ:NEOG) reported Q3 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 3.6% year on year to $209.2 million. The company’s full-year revenue guidance of $830 million at the midpoint came in 1.3% above analysts’ estimates. Its non-GAAP profit of $0.04 per share was in line with analysts’ consensus estimates.

Company Overview

Founded in 1981 and operating at the intersection of food safety and animal health, Neogen (NASDAQ:NEOG) develops and manufactures diagnostic tests and related products to detect dangerous substances in food and pharmaceuticals for animal health.

The medical devices industry operates a business model that balances steady demand with significant investments in innovation and regulatory compliance. The industry benefits from recurring revenue streams tied to consumables, maintenance services, and incremental upgrades to the latest technologies. However, the capital-intensive nature of product development, coupled with lengthy regulatory pathways and the need for clinical validation, can weigh on profitability and timelines. In addition, there are constant pricing pressures from healthcare systems and insurers maximizing cost efficiency. Over the next several years, one tailwind is demographic–aging populations means rising chronic disease rates that drive greater demand for medical interventions and monitoring solutions. Advances in digital health, such as remote patient monitoring and smart devices, are also expected to unlock new demand by shortening upgrade cycles. On the other hand, the industry faces headwinds from pricing and reimbursement pressures as healthcare providers increasingly adopt value-based care models. Additionally, the integration of cybersecurity for connected devices adds further risk and complexity for device manufacturers.

Neogen's competitors in the food safety testing market include bioMérieux (EPA:BIM), Thermo Fisher Scientific (NYSE:TMO), and PerkinElmer (NYSE:PKI). In the animal safety segment, the company competes with Zoetis (NYSE:ZTS), Elanco Animal Health (NYSE:ELAN), and Merck Animal Health, a division of Merck & Co. (NYSE:MRK).

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $886.9 million in revenue over the past 12 months, Neogen is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Neogen grew its sales at a solid 15.8% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Neogen’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 1.8% over the last two years.

This quarter, Neogen’s revenue fell by 3.6% year on year to $209.2 million but beat Wall Street’s estimates by 2.6%.

Looking ahead, sell-side analysts expect revenue to decline by 7.3% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Neogen’s high expenses have contributed to an average operating margin of negative 23.2% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Looking at the trend in its profitability, Neogen’s operating margin decreased significantly over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 127.2 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

In Q3, Neogen generated a negative 7.7% operating margin.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Neogen, its EPS declined by 12.2% annually over the last five years while its revenue grew by 15.8%. This tells us the company became less profitable on a per-share basis as it expanded.

Diving into the nuances of Neogen’s earnings can give us a better understanding of its performance. As we mentioned earlier, Neogen’s operating margin declined by 137.5 percentage points over the last five years. Its share count also grew by 104%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q3, Neogen reported adjusted EPS of $0.04, down from $0.07 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 9.1%. Over the next 12 months, Wall Street expects Neogen’s full-year EPS of $0.30 to grow 1.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Neogen’s demanding reinvestments have consumed many resources over the last five years, contributing to an average free cash flow margin of negative 2.2%. This means it lit $2.23 of cash on fire for every $100 in revenue.

Taking a step back, we can see that Neogen’s margin dropped by 11.7 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because it’s already burning cash. If the longer-term trend returns, it could signal it’s in the middle of a big investment cycle.

Neogen burned through $13.15 million of cash in Q3, equivalent to a negative 6.3% margin. The company’s cash burn slowed from $56.35 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Neogen’s five-year average ROIC was negative 2%, meaning management lost money while trying to expand the business. Investors are likely hoping for a change soon.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Neogen’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Neogen burned through $3.15 million of cash over the last year, and its $792.5 million of debt exceeds the $138.9 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Neogen’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Neogen until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We enjoyed seeing Neogen beat analysts’ revenue expectations this quarter. We were also glad its full-year revenue guidance slightly exceeded Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 9.6% to $6.38 immediately after reporting.

Updated: December 4, 2025 at 10:54 PM EST

Before investing in or passing on Neogen, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

We see the value of companies making people healthier, but in the case of Neogen, we’re out. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its diminishing returns show management's prior bets haven't worked out. On top of that, the company’s declining EPS over the last five years makes it a less attractive asset to the public markets.

Neogen’s P/E ratio based on the next 12 months is 18.4x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $8.17 on the company (compared to the current share price of $5.90).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.