This Surging Company Is Making Eating Safer for Allergy Sufferers

Editor's Note: We're sharing this Private Briefing with you today because everyone who has a child or grandchild with a food allergy needs to know about the latest developments at this promising company. Here's Bill with more on the shares and how to play them.

Shares of Neogen Corp. (Nasdaq: NEOG) soared nearly 21% on Tuesday after the global agriculture technology firm reported record revenue and earnings results that were far better than folks had expected.

With the surge, Neogen's shares have advanced nearly 40% since Radical Technology Profits Editor Michael A. Robinson told us about the company back in April 2014.

This stock lies at the intersection of several powerful emerging high-profit trends. Here's where we think it will go next...

A Stellar Earnings Report Fired Up This "Best in Class" Play

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"Bill, it's just like I've been saying, Neogen is one of the very best ways to play food safely and ag tech," Michael told me late yesterday. "And don't underestimate the importance of that second item. The small-cap firm ensures the safety of food and animal products, which is pretty much the entire agriculture ecosystem. This is a company that supplies products and technology to some of the biggest names in food production today - Coca-Cola, DuPont, General Mills, Kraft, McDonald's, and Nabisco. And the bolt-on acquisitions the company has made of late have helped fuel more growth even as they've helped boost margins. Because everybody has to eat and drink, Neogen's operations affect millions of people, whether they have heard of the firm or not."

Let's take a closer look at both the numbers and the business.

And if you're the parent of a school-aged child - as I am - there's one part of Neogen's business that I think will really interest you.

In its fourth-quarter earnings report, the Lansing, Mich.-based company said it earned $9.34 million, or $0.25 a share - a 25% jump from the $7.54 million, or $0.20 a share, reported during the same quarter a year ago.

Revenue increased 17% to $78.6 million.

Both sales and profits surpassed Wall Street expectations. Zacks Investment Research said analysts were looking for earnings of $0.24 per share and revenue of $74.1 million.

The fourth quarter was the 93rd of the past 98 quarters that Neogen reported year-over-year revenue gains. And that includes every single quarter in the past 10 years.

For all of fiscal 2015, the 33-year-old Neogen said it earned $33.5 million, or $0.90 a share - a gain of 19% from the year before. Revenue reached $283 million - a healthy top-line gain of 14%.

"We are pleased to report a strong finish to our 2015 fiscal year and increased momentum as we begin our new fiscal year," Neogen CEO James Herbert said. "In our fourth quarter, we exceeded our goal of producing double-digit organic growth for both our food [safety] and animal-safety [business] segments. Neogen is uniquely positioned to grow and prosper by helping the world's food producers and processors meet ever-increasing challenges - whether inside the farm gate, or anywhere along the processing and distribution chain."

As Herbert tells us, Neogen operates two businesses. And both are seeing strong growth.

In its food-safety business, Neogen supplies test kits that help customers quickly detect the organisms that spoil food. The kits provide a "fast test" alternative to lab-based microbiology testing, in which samples are "sent out" for analysis.

Neogen also provides rapid tests for food "allergens" such as gluten and peanuts.

In fiscal 2015, sales of those test kits rose 18% on a year-over-year basis. Neogen said that hefty gain was fueled by stepped-up consumer demand and growing regulator efforts focusing on accurate food labeling (meaning foods that are free of allergens are accurately labeled).

The discovery that cumin and other spice blends have been contaminated with peanuts and other such allergens on a large scale has created a big demand for these testing products, Neogen says.

Allergies Are Soaring, and No One Knows Why

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So far, my son, Joey, hasn't displayed any major food allergies. But he's lucky. And that means my wife, Robin, and I have been lucky, too.

According to Food Allergy Research & Education Inc. (FARE) - a nonprofit organization that focuses on this issue - about 15 million Americans have food allergies, including all those at risk for life-threatening anaphylaxis.

More than 17 million Europeans have a food allergy, FARE says. And hospital admissions for children experiencing several allergic reactions have surged sevenfold over the past 10 years, according to the European Academy of Allergy and Clinical Immunology (EAACI).

If you're talking about children under 18, this very serious malady affects one in every 13 kids - about two in any classroom you walk into.

And the problem has soared in recent years.

According to a 2013 study by the Centers for Disease Control and Prevention (CDC), food allergies among children zoomed about 50% between 1997 and 2011. The economic cost of this is nearly $25 billion. But if you're a parent of one of these kids, that "cost" runs a distant second to the worry you feel every time your son or daughter buys a school lunch, goes to a friend's birthday party, goes out to eat with others, or snags a snack while at a friend's house.

Every three minutes, a food-allergy reaction triggers a visit to a hospital emergency room - to the tune of 200,000 visits a year. And the CDC says food allergies are responsible for 300,000 doctor visits by kids under 18.

Until researchers can fully understand the cause of this increased allergen sensitivity, testing - with kits like those made by Neogen - are one safety-enhancing alternative.

Shares of Neogen jumped $9.97 to close at $58.41 on Tuesday. That means the stock blew through the $53 consensus target and even the $55 high-water estimate (which underscores why we often give that to you).

Expect to see an "upgrade cycle" take hold, with analysts boosting both their ratings and target prices for Neogen's stock. That could trigger additional gains.

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About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.

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