Intrinsic value of Neogen - NEOG

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$61.40

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$61.40

 
Intrinsic value

$12.90

 
Up/down potential

-79%

 
Rating

str. sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of NEOG stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 2.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  13.43
  14.30
  13.37
  12.53
  11.78
  11.10
  10.49
  9.94
  9.45
  9.00
  8.60
  8.24
  7.92
  7.63
  7.36
  7.13
  6.91
  6.72
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
Revenue, $m
  321
  367
  416
  468
  523
  581
  642
  706
  773
  842
  915
  990
  1,069
  1,150
  1,235
  1,323
  1,415
  1,510
  1,609
  1,711
  1,818
  1,930
  2,046
  2,167
  2,293
  2,425
  2,562
  2,706
  2,856
  3,013
  3,176
Variable operating expenses, $m
 
  297
  336
  376
  420
  465
  513
  563
  616
  670
  727
  778
  839
  903
  970
  1,039
  1,111
  1,185
  1,263
  1,344
  1,428
  1,516
  1,607
  1,702
  1,801
  1,904
  2,012
  2,125
  2,243
  2,366
  2,494
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  265
  297
  336
  376
  420
  465
  513
  563
  616
  670
  727
  778
  839
  903
  970
  1,039
  1,111
  1,185
  1,263
  1,344
  1,428
  1,516
  1,607
  1,702
  1,801
  1,904
  2,012
  2,125
  2,243
  2,366
  2,494
Operating income, $m
  56
  70
  80
  92
  103
  116
  129
  143
  157
  172
  188
  213
  229
  247
  265
  284
  304
  324
  345
  367
  390
  414
  439
  465
  492
  521
  550
  581
  613
  647
  682
EBITDA, $m
  69
  87
  99
  111
  124
  138
  153
  168
  184
  200
  217
  235
  254
  273
  293
  314
  336
  358
  382
  406
  432
  458
  486
  515
  545
  576
  608
  643
  678
  715
  754
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
Earnings before tax, $m
  56
  70
  80
  91
  103
  115
  128
  141
  155
  170
  185
  210
  226
  243
  261
  279
  298
  318
  339
  361
  383
  407
  431
  456
  483
  510
  539
  569
  601
  634
  668
Tax expense, $m
  19
  19
  22
  25
  28
  31
  34
  38
  42
  46
  50
  57
  61
  66
  70
  75
  81
  86
  92
  97
  103
  110
  116
  123
  130
  138
  146
  154
  162
  171
  180
Net income, $m
  37
  51
  59
  67
  75
  84
  93
  103
  113
  124
  135
  153
  165
  177
  190
  204
  218
  232
  248
  263
  280
  297
  315
  333
  352
  373
  394
  416
  439
  463
  488

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  108
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  452
  393
  446
  502
  561
  623
  688
  757
  828
  903
  981
  1,061
  1,146
  1,233
  1,324
  1,418
  1,516
  1,618
  1,724
  1,834
  1,949
  2,069
  2,193
  2,323
  2,458
  2,599
  2,746
  2,900
  3,061
  3,229
  3,405
Adjusted assets (=assets-cash), $m
  344
  393
  446
  502
  561
  623
  688
  757
  828
  903
  981
  1,061
  1,146
  1,233
  1,324
  1,418
  1,516
  1,618
  1,724
  1,834
  1,949
  2,069
  2,193
  2,323
  2,458
  2,599
  2,746
  2,900
  3,061
  3,229
  3,405
Revenue / Adjusted assets
  0.933
  0.934
  0.933
  0.932
  0.932
  0.933
  0.933
  0.933
  0.934
  0.932
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
  0.933
Average production assets, $m
  102
  117
  132
  149
  166
  185
  204
  225
  246
  268
  291
  315
  340
  366
  393
  421
  450
  480
  512
  544
  578
  614
  651
  689
  729
  771
  815
  861
  908
  958
  1,010
Working capital, $m
  221
  129
  146
  165
  184
  205
  226
  249
  272
  297
  322
  349
  376
  405
  435
  466
  498
  531
  566
  602
  640
  679
  720
  763
  807
  854
  902
  953
  1,005
  1,060
  1,118
Total debt, $m
  0
  7
  14
  22
  31
  39
  48
  58
  68
  78
  89
  101
  112
  125
  137
  151
  164
  179
  193
  209
  225
  242
  259
  277
  296
  316
  337
  358
  381
  404
  429
Total liabilities, $m
  48
  55
  62
  70
  79
  87
  96
  106
  116
  126
  137
  149
  160
  173
  185
  199
  212
  227
  241
  257
  273
  290
  307
  325
  344
  364
  385
  406
  429
  452
  477
Total equity, $m
  404
  338
  383
  431
  482
  536
  592
  651
  712
  777
  843
  913
  985
  1,060
  1,138
  1,220
  1,304
  1,392
  1,483
  1,577
  1,676
  1,779
  1,886
  1,998
  2,114
  2,235
  2,362
  2,494
  2,632
  2,777
  2,928
Total liabilities and equity, $m
  452
  393
  445
  501
  561
  623
  688
  757
  828
  903
  980
  1,062
  1,145
  1,233
  1,323
  1,419
  1,516
  1,619
  1,724
  1,834
  1,949
  2,069
  2,193
  2,323
  2,458
  2,599
  2,747
  2,900
  3,061
  3,229
  3,405
Debt-to-equity ratio
  0.000
  0.020
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.100
  0.110
  0.110
  0.110
  0.120
  0.120
  0.120
  0.130
  0.130
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.140
  0.150
  0.150
Adjusted equity ratio
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860
  0.860

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  37
  51
  59
  67
  75
  84
  93
  103
  113
  124
  135
  153
  165
  177
  190
  204
  218
  232
  248
  263
  280
  297
  315
  333
  352
  373
  394
  416
  439
  463
  488
Depreciation, amort., depletion, $m
  13
  17
  18
  20
  21
  22
  23
  25
  26
  28
  30
  22
  24
  26
  28
  30
  32
  34
  37
  39
  41
  44
  46
  49
  52
  55
  58
  61
  65
  68
  72
Funds from operations, $m
  17
  68
  77
  86
  96
  106
  117
  128
  140
  152
  165
  175
  189
  204
  218
  234
  250
  267
  284
  302
  321
  341
  361
  382
  404
  428
  452
  477
  503
  531
  560
Change in working capital, $m
  -18
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
Cash from operations, $m
  35
  64
  60
  68
  76
  86
  95
  105
  116
  127
  139
  149
  162
  175
  189
  203
  218
  233
  249
  266
  283
  301
  320
  340
  360
  381
  403
  427
  451
  476
  502
Maintenance CAPEX, $m
  0
  -7
  -8
  -9
  -11
  -12
  -13
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -37
  -39
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -61
  -65
  -68
New CAPEX, $m
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
Cash from investing activities, $m
  -61
  -22
  -24
  -26
  -29
  -30
  -32
  -35
  -37
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -62
  -65
  -70
  -73
  -76
  -81
  -84
  -89
  -94
  -99
  -104
  -109
  -115
  -120
Free cash flow, $m
  -26
  42
  36
  42
  48
  55
  63
  71
  79
  88
  97
  104
  114
  125
  136
  147
  159
  171
  184
  197
  210
  225
  239
  255
  271
  287
  305
  323
  341
  361
  382
Issuance/(repayment) of debt, $m
  0
  7
  7
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  22
  24
  25
Issuance/(repurchase) of shares, $m
  12
  0
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  15
  7
  9
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  22
  24
  25
Total cash flow (excl. dividends), $m
  -11
  49
  43
  49
  56
  64
  72
  80
  89
  98
  108
  115
  126
  137
  148
  160
  172
  185
  198
  212
  226
  241
  257
  273
  290
  307
  325
  344
  364
  385
  406
Retained Cash Flow (-), $m
  -53
  -42
  -45
  -48
  -51
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -72
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -99
  -103
  -107
  -112
  -116
  -121
  -127
  -132
  -138
  -144
  -151
Prev. year cash balance distribution, $m
 
  108
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  115
  0
  1
  6
  10
  16
  21
  27
  34
  41
  46
  54
  62
  70
  79
  88
  97
  107
  117
  128
  139
  150
  161
  173
  186
  199
  212
  226
  240
  255
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  110
  0
  1
  5
  8
  11
  14
  17
  20
  21
  22
  23
  23
  24
  23
  22
  21
  20
  18
  16
  14
  12
  11
  9
  7
  6
  5
  3
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9

Neogen Corporation, together with its subsidiaries, develops, manufactures, and markets various products and services for food and animal safety worldwide. It operates through two segments, Food Safety and Animal Safety. The Food Safety segment offers diagnostic test kits and complementary products to detect dangerous and/or unintended substances in human food and animal feed, such as foodborne pathogens, spoilage organisms, natural toxins, food allergens, genetic modifications, ruminant by-products, meat speciation, drug and pesticide residues, and general sanitation concerns; and AccuPoint Advanced rapid sanitation test for adenosine triphosphate, a chemical found in living cells. This segment offers its products primarily to food and feed processors, meat and poultry processors, seafood processors, fruit and vegetable producers, grain producers and processors, and dairies; laboratories; producers of pharmaceuticals, cosmetics, veterinary vaccines, and nutraceutical products; and various regulatory agencies. The Animal Safety segment provides pharmaceuticals, rodenticides, disinfectants, vaccines, veterinary instruments, topicals, diagnostic products, and genetic testing services to the animal safety market. This segmentÂ’s drug detection immunoassay test kits are used for the detection of abused and therapeutic drugs in farm animals and racing animals; detection of drug residues in meat and meat products; and human forensic toxicology drug screening applications. Its products are also used to maintain sanitary conditions and limit the potential hazards of bacteria, fungi, and viruses. In addition, this segment offers various products for researchers to detect biologically active substances. The company sells its products directly, as well as through distributors and retail chains. Neogen Corporation was founded in 1981 and is headquartered in Lansing, Michigan.

FINANCIAL RATIOS  of  Neogen (NEOG)

Valuation Ratios
P/E Ratio 62.3
Price to Sales 7.2
Price to Book 5.7
Price to Tangible Book
Price to Cash Flow 65.9
Price to Free Cash Flow 109.8
Growth Rates
Sales Growth Rate 13.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 40%
Cap. Spend. - 3 Yr. Gr. Rate 9.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.8%
Ret/ On Assets - 3 Yr. Avg. 8.9%
Return On Total Capital 9.8%
Ret/ On T. Cap. - 3 Yr. Avg. 10%
Return On Equity 9.8%
Return On Equity - 3 Yr. Avg. 10%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 47.7%
Gross Margin - 3 Yr. Avg. 49%
EBITDA Margin 21.5%
EBITDA Margin - 3 Yr. Avg. 21.6%
Operating Margin 17.4%
Oper. Margin - 3 Yr. Avg. 17.9%
Pre-Tax Margin 17.4%
Pre-Tax Margin - 3 Yr. Avg. 17.7%
Net Profit Margin 11.5%
Net Profit Margin - 3 Yr. Avg. 11.6%
Effective Tax Rate 33.9%
Eff/ Tax Rate - 3 Yr. Avg. 34.5%
Payout Ratio 0%

NEOG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NEOG stock intrinsic value calculation we used $321 million for the last fiscal year's total revenue generated by Neogen. The default revenue input number comes from 2016 income statement of Neogen. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our NEOG stock valuation model: a) initial revenue growth rate of 14.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for NEOG is calculated based on our internal credit rating of Neogen, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Neogen.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of NEOG stock the variable cost ratio is equal to 81.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for NEOG stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Neogen.

Corporate tax rate of 27% is the nominal tax rate for Neogen. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the NEOG stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for NEOG are equal to 31.8%.

Life of production assets of 14 years is the average useful life of capital assets used in Neogen operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for NEOG is equal to 35.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $404 million for Neogen - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 38.444 million for Neogen is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Neogen at the current share price and the inputted number of shares is $2.4 billion.


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COMPANY NEWS

▶ ETFs with exposure to Neogen Corp. : April 17, 2017   [Apr-17-17 01:01PM  Capital Cube]
▶ Lansing City Council reconsiders sanctuary city status   [Apr-13-17 06:23PM  Fox Business Videos]
▶ ETFs with exposure to Neogen Corp. : April 5, 2017   [Apr-05-17 05:09PM  Capital Cube]
▶ Neogen meets 3Q profit forecasts   [08:52AM  Associated Press]
▶ Neogen reports 24% increase in net income   [08:45AM  PR Newswire]
▶ Neogen acquires Brazil-based Rogama   [08:45AM  PR Newswire]
Stock chart of NEOG Financial statements of NEOG
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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