If a CEO is buying company stock, it’s often worth investigating the stock further. CEOs tend to have an intimate understanding of their businesses and are usually way ahead of analysts and portfolio managers when it comes to revenue and earnings trends.
In this report, we are going to highlight a large CEO purchase at Neogen Corp (NEOG: US). Neogen offers a comprehensive range of solutions and services for the food processing, animal protein, and agriculture industries. Its goal is to elevate the world’s level of food and animal safety. The company is listed on the Nasdaq and currently has a market cap of $2.4 billion.
Insider buying at Neogen
Our insider transaction data shows that on July 29, Neogen’s President and CEO John Adent purchased 17,500 NEOG shares at a price of $23.07 per share. This trade cost the insider $403,725 and increased his holding to 58,103 shares.
This trade got our attention due to its size. Not only is it the largest purchase from an insider at Neogen in the last decade, but it is a large trade on a relative basis for the insider, having increased the size of his holding by 43%. Our Insider Model views the trade as very bullish.
It’s worth noting that Mr. Adent has considerable industry experience. Prior to joining Neogen in 2018, he served as CEO of Animal Health International. He has also held management positions at Ralston Purina Company and its spin-off division, Agribrands. So, he is likely to have a good understanding of his company’s prospects.
A new chapter
Neogen shares have underperformed recently, falling about 50% year to date. It seems the market doesn’t like the company’s plans to buy 3M’s Food Safety Business, announced in December last year. This deal is set to cost Neogen around $1 billion, which will add a significant amount of debt to the company’s balance sheet.
However, management appears to be confident that the deal will work out. “Our integration efforts have us well prepared, and we look forward to welcoming the 3M Food Safety team members to the Neogen family. Our future is bright as we begin to build the next chapter of Neogen together post-close. We have a lot to look forward to as we celebrate our 40th year of operations," said Mr. Adent in the company’s recent Q4 results.
It’s worth noting that Neogen’s Q4 results showed that the company has momentum in the lead-up to the closing of the 3M deal. For the period, revenue was up 10% year on year to $140.1 million. Meanwhile, excluding 3M deal-related costs, net income for the quarter was $19.1 million, an increase of 21% compared to the prior year's figure of $15.8 million. Gross margins in Q4 were 46.4% compared to 45.3% in the prior year.
“The outstanding results for this quarter and fiscal year give us momentum as we move into our 2023 fiscal year, with the close of the 3M transaction on the horizon,” commented Mr. Adent.
In light of the solid results here, and the confidence from management, we see insider buying as a bullish indicator.