Roth Capital affirms its Buy rating and $65 price target on Neogen Corp. (Nasdaq: NEOG) following recent Q1 results.

Analyst Anton Brenner noted the following key points:

• Revenues in Q11 rose 10.7% to $74.9 million, slightly below our $75.5 million estimate. The negative impact of the stronger dollar on revenues was $2.2 million in Q1. EPS equaled $0.25 vs. $0.24, below our $0.27 estimate. Currency translation reduced EPS in the period by $0.02.
• All of the currencies in which NEOG operates declined in Q1: the Brazilian Real -32%, the Euro -18%, the Mexican peso -18% and, the Pound Sterling -8%. Despite this, Brazil subsidiary revenues rose 16% after devaluation and Mexican subsidiary revenues rose 26%. Neogen Europe revenues decreased 12%, reflecting a large one-time order last year.
• Mycotoxin and allergen test sales rose sharply. Mycotoxin test kit sales rose 12%, even though there were no major mycotoxin outbreaks anywhere in the world. Allergen test kit sales rose 17%.
• These gains are largely the initial result of the finalization by the FDA of the first two of seven major rules under the Food Safety Modernization Act. These two rules require food and animal feed processors to develop and implement food safety plans that indicate potential safety problems of their products and the steps they will take to prevent the likelihood of those problems occurring. Although the rules will be phased in over the next two years, many companies already are implementing such measures. Two additional rules expected to be finalized shortly will enhance oversight over food imported into the U.S., which will require testing of these products, such as seafood, fruit and vegetables, at the point of shipment. Neogen should be a major beneficiary of these programs.
• An acquisition during Q1 established Neogen in India, an objective for the past two years. The acquisition of Sterling House, a food safety testing service, is in the region from which spices, tea and fruits and vegetables are exported. Neogen intends to expand the testing business while also introducing an array of other diagnostic tests and bio security cleaners and disinfectants.
• Neogen's food and animal safety business in China is expanding. The focus is to work with multinational as well as leading Chinese companies with a major franchise to protect.

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