NeoGenomics Inc (NEO)

[dayneyus]

Here is an older Zacks analysis of NEO , target $8.00, Earnings are ahead of that release. The other possibility that is a real possibility is a Take Over offer by one of the big is... like Abbot , Quest, Lab Corp...The new area of testing is being pioneered by small companies that the big gobble up.

http://scr.zacks.com/files/July%2021,%202014_NEO_Zeng_v001_l11dpi.pdf
?Small-Cap Research
July 21, 2014 Grant Zeng, CFA 312-265-9466 [e-mail]
10 S. Riverside Plaza, Chicago, IL 60606
?scr.zacks.com
NeoGenomics Inc.
Current Recommendation Outperform
Prior Recommendation N/A Date of Last Change 10/09/2011
52-Week High
52-Week Low $2.10 One-Year Return (%) 36.03 Beta 1.15 Average Daily Volume (sh) 678,764
Shares Outstanding (mil) 50 Market Capitalization ($mil) $218 Short Interest Ratio (days) 11.82 Institutional Ownership (%) N/A Insider Ownership (%) N/A
Annual Cash Dividend $0.00 Dividend Yield (%) 0.00
5-Yr. Historical Growth Rates
Sales (%) 51.6 Earnings Per Share (%) N/A Dividend (%) N/A
P/E using TTM EPS N/A
P/E using 2011 Estimate N/A P/E using 2012 Estimate N/A
Zacks Rank N/A
(NEO-NASDAQ)
NEO: record revenue for 2Q14, expecting continued growth for 2H14 and 2015-- Outperform
Current Price (07/20/14)
Twelve- Month Target Price
SUMMARY DATA
$5.44
$8.00
OUTLOOK
NeoGenomics just reported record revenue for 2Q14. As a result, we have increased our revenue estimates for 2H14 and for 2015 to 2017. Balance sheet remains strong.
Management has done a great job to limit the impact of Medicare reimbursement by increasing test volume, launching new products, and saving costs. Going forward, revenue will continue to grow in 2H2014 and beyond. NEO is well poised for long term growth.
We continue to rate NEO shares Outperform based on the Company s strong fundamentals.
??$4.71 Risk Level
Above Avg.,
Small-Growth Med-Biomed/Gene N/A
Type of Stock
Industry
Zacks Rank in Industry
ZACKS ESTIMATES Revenue
(in millions of $)
2013
2014
2015
2016
(Mar) 15.7 A 18.2 A
(Jun) 15.6 A 20.7 A
(Sep) 16.9 A 22.0 E
(Dec) 18.3 A 23.0 E
(Dec) 66.5 A
83.9 E
96.0 E 120.0 E
Earnings per Share
Q1 Q2 Q3 Q4 Year
(EPS is operating earnings before non recurring items)
(Mar)
2013 $0.00 A
2014 $0.00 A
2015 2016
(Jun) $0.01 A $0.01 A
(Sep) $0.02 A $0.00 E
(Dec) $0.02 A $0.00 E
(Dec) $0.04 A $0.02 E $0.07 E $0.16 E
62
Q1 Q2 Q3 Q4 Year
Zacks Projected EPS Growth Rate - Next 3 Years %
??© Copyright 2014, Zacks Investment Research. All Rights Reserved.
???WHAT S NEW
Record revenue reported for 2Q14;
We increase our revenue and earnings estimates for 2H14 and for 2015;
Balance sheet remains strong;
Maintain Outperform rating and raise our price target to $8.00 from previous $7.00 per share;
Record Revenue Reported for 2Q14
On July 17, NeoGenomics (NEO) reported its financial results for the second quarter ended June 30, 2014.
Total revenue for 2Q14 was $20.67 million, compared to $15.6 million for 2Q13, a 32.5% increase. This revenue growth was achieved despite a $1.1 million reduction in revenue recorded to account for a conservative interpretation of the new National Correct Coding Initiative (NCCI) edits relating to
billing Medicare for FISH testing.
This record revenue of second quarter of 2014 also beat our estimate of $18.8 million. The revenue growth in 2Q14 was mainly driven by 40% test volume increase.
Gross margin increased to 49.5% in 2Q14 from 45.9% in 2Q13. This increased gross margin was achieved due to reduced average cost-of-goods-sold-per-test by 11.7%, although average revenue-per- test decreased by 5.3% from the first quarter of last year due to the NCCI FISH matter.
Total operating expenses were $9.7 million in 2Q14, compared to $6.7 million in 2Q13, an increase of 45.2%. This increase was driven by an increase in the size of its sales team, increased commission and bad debt expense related to the increase in revenue, and continued investments in facilities, information technology, and new test development activities.
Net income was $0.3 million for 2Q14 ($0.01/share) compared to $0.3 million ($0.01/share) for 2Q13. Net income for 2Q14 also beat our estimate of $0.1 million ($0.00/share).
Adjusted EBITDA for 2Q14 was $2.1 million, a 15.8% increase from last year.
Absent the impacts of the NCCI FISH matter, the Company estimates that Adjusted EBITDA would have been $3.1 million and net income would have been approximately $1.1 million, or $0.02/share.
We Increase Our Estimates for 2H14 and 2015
We are pleased to see continued revenue and earnings growth for the first half of 2014, especially when the company is faced with continued pressure on reimbursement. The reimbursement challenge is for the whole industry, but NEO management is doing a great job to manage its negative impact on both top line and bottom line of the Company.
NEO is attracting new clients and gaining market share due to its stream of innovative new tests and consistently high service levels. The company has been successful at increasing productivity and reducing costs. As a result, NEO achieved a 32.5% growth in revenue and 360 basis point expansion in gross margin in 2Q14, particularly in the face of a 5.2% reduction in average unit price. We think this is a significant accomplishment. NEO also achieved a 12% reduction in average cost/test in the second quarter. According to management, average cost per test can be further reduced by 8-10% in both 2014 and in 2015 on a full year basis.
?????????Zacks Investment Research Page 2 scr.zacks.com
As a result of the better than expected first half financials, we increased our estimates for 2H14 and full year of 2015.
Specifically, we increase our revenue estimate for 3Q14 to $22 million from previous $19.1 million and for 4Q14 to $23 million from previous $19.3 million. For the year 2014, we increase our estimate for total revenue to $83.9 million from previous $75.4 million.
We increase our revenue estimate to $96, $120 and $150 million from previous $85, $110 million and $145 million respectively for 2015, 2016 and 2017. Our estimates include revenue from Path Logic and the negative impact from NCCI matter.
Revenue increase should be achieved from new accounts, new products offering, test services for biopharmaceutical companies and from expansion to new geographies.
Summary of Quarterly Performance
3Q12
$14,202
25.5%
41.5%
40.6%
($975.0)
($0.02)
4Q12
$14,893
15.5%
43.2%
38.9%
($113.0)
$0.00
1Q13
$15,657
3.3%
46.3%
39.0%
$3.0
$0.00
2Q13
$15,603
-0.1%
45.9%
38.7%
$273.0
$0.01
3Q13
$16,884
18.9%
48.4%
39.5%
$929.0
$0.02
4Q13
$18,323
23.0%
50.0%
39.9%
$963.0
$0.02
1Q14
$18,182
16.1%
47.9%
42.3%
$102.0
$0.00
2Q14
49.5%
43.7%
???Total Revenue ($, 000's)
?% Growth
??Gross Margin
??SG&A as a % of Revenue
??Net Income (Loss) ($,000's)
?Diluted EPS
??Adjusted EBITDA ($, 000's)
?% Growth
??Test Volume (000's)
?% Growth
??Average Price/Test
?% Growth
???Average Cost/Test
$229.00
??% Growth
-11.9%
??$20,670
?32.5%
???$274.0
?$0.01
?$842.0 $1,439.0
$1,794.0 $1,825.0 $2,163.0 $2,733.0 $1,685.0
21.5%
28,315
41.7%
$501.58
-11.5%
36.4%
30,513
35.3%
$488.09
-14.6%
$277.25
1.1%
32,088
19.1%
$488.00
-13.3%
$262.00
-6.1%
32,519
12.7%
$480.00
-11.3%
$260.00
156.9%
33,723
19.1%
$501.00
-0.1%
89.9%
38,987
27.8%
$469.99
-3.7%
$234.96
-15.3%
-6.1%
38,734
20.7%
$469.00
-3.9%
$245.00
-6.5%
$2,116.0
?15.9%
?45,475
?39.8%
?$455.00
?-5.2%
???????????Zacks Investment Research Page 3 scr.zacks.com
Summary of Annual Performance
2010 2011 2012
$34,371 $43,484 $59,866
16.6% 26.5% 37.7%
45.9% 44.7% 44.8%
54.5% 45.6% 39.0%
2013 2014E 2015E
2016E 2017E
?$, 000's
??Total Revenue
?% Growth
??Gross Margin
??SG&A as a % of Revenue
??Net Income (Loss)
?Diluted EPS
??Adjusted EBITDA
??Test Volume Growth
?($3,303.0) (0.09)
($566.0)
25.5%
($1,177.0) (0.03)
$2,134.0
33.1%
$66.0 0.00
$5,999.0
50.2%
$2,033.0 0.04
$8,515.0
19.8%
$856.0 0.02
$8,500.0
30.0%
$3,960.0 0.07
$9,500.0
35.0%
$9,775.0 0.16
$15,000.0
40.0%
$18,700.0 0.32
$20,200.0
45.0%
$66,467 $83,852 $96,000 11.0% 26.2% 14.5%
47.7% 48.9% 50.0%
39.3% 43.2% 41.7%
$120,000 $150,000 25.0% 25.0%
50.0% 50.0%
37.1% 32.0%
?????????Balance Sheet Remains Strong
As of June 30, 2014, NeoGenomics had $5.0 million in cash. The company also has approximate $5.7 million of availability under its credit line. In addition, the company has $100 million shelf registration statement currently effective at SEC.
There is no debt for NEO as of June 30, 2014.
With the strong balance sheet, NEO will be able to focus on its long term growth strategy without concern about short term cash strain.
We Raise Our Price Target to $8.00 Per Share
We continue to rate NEO shares an Outperform and raise our price target to $8.00 per share from previous $7.00 per share.
NeoGenomics is an emerging leader in the genetic/molecular cancer testing market. The Company holds numerous competitive advantages over its competitors. We are especially impressed by the Company s fast turn-around times, tech-only reporting solution and state of the art laboratory information system (LIS), which are key elements that drive top line growth.
NeoGenomics has achieved strong financial performance. Revenue grew from $11.5 million in 2007 to $66.5 million in 2013, a tremendous 34% compound annual growth rate (CAGR) for the six-year period. We estimate revenue will further grow to $150 million in 2017, a CAGR of 23% from 2013 to 2017.
We are optimistic about the strength of the Company s business model. Fundamentals remain strong for NEO. Pipeline is strong too. The Company is executing plans to gain further efficiencies. By growing its business, lowering its costs and driving innovation, NeoGenomics is becoming America's premier cancer testing laboratory.
We initiated coverage of NEO in early Oct 2011 when share price was about $1.00 per share. Right now, shares of NEO are trading at about $5.00. We think there is still room for further price appreciation. Based on its strong fundamentals, we think shares of NeoGenomics are still undervalued at current market price. Currently, NEO is trading at about $5.0 per share which values the Company at $250 million in market cap based on 50 million shares outstanding. This is still a discount compared to its peers. Based on our financial model, revenue will grow at 23% CAGR from 2013 to 2017. We arrive at
??????Zacks Investment Research Page 4 scr.zacks.com
our price target of $8.00 per share by using 35 x P/E multiple and coupled with our estimated EPS of $0.32 in 2017, discounted at 20% for two years. This valuation corresponds to approximately 4 times our 2015 estimated revenue of $96 million. Our price target values NEO at $400 million in market cap which we think is still conservative.
NEO could be an acquisition target for big players. The genetic/molecular industry is quite fragmented currently, but merger & acquisition activity is looming. We all know that big players like LabCorp and Quest Diagnostics are increasingly acquiring smaller players in this field. Qiagen NV, a research service company based in Netherland, entered into genetic/molecular testing market in 2007 by acquiring Digene Corp. Since then, Qiagen has been quite aggressive in acquisition of other small genetic/molecular testing companies.
With the increased activity in M&A in the industry, NEO could be an easy target for acquisition. At this point, we think NEO is a stock with low risk and high return.
???Zacks Investment Research Page 5 scr.zacks.com
?PROJECTED INCOME STATEMENT
$ in million except per share data
Total Revenues
YOY Growth
Gross Income $26.84 $7.25
Operating Income
Pre-Tax Income
$1.2 $0.3 $0.5 $1.2 $1.2 $3.2 $0.4 $0.6 $0.6 $0.7 $2.3 $5.0 $12.0 $22.5 2.0% 1.9% 3.2% 6.9% 6.6% 4.8% 2.2% 2.8% 2.9% 2.8% 2.7% 5.2% 10.0% 15.0%
Reported Net Income
Reported EPS
5.3% 4.7% 3.1% 53.2 53.6 52.9
$0.02 $0.02 $0.04
$0.00 $0.00 $0.00
$0.9 $0.9 $2.0 $0.02 $0.02 $0.04
0.6% 1.3% 53.5 53.7
$0.00 $0.01
$0.00 $0.00
$0.1 $0.3 $0.00 $0.01
1.0% 4.1% 54.0 57.0
$0.02 $0.07
$0.00 $0.00
$0.9 $4.0 $0.02 $0.07
8.1% 60.0
$0.16
$0.00
$9.8 $0.16
Non GAAP Net Income Non GAAP EPS
Income taxes(benefit)
$0.1 $0.2 11.0% 7.0%
$0.9 $2.0
$0.0 $0.1 20.9% 15.7%
$0.1 $0.3
$0.1 $0.1 30.3% 28.6%
$0.2 $0.3
-74.4% -70.8% 1.0% 1.1%
54.2 54.4
$0.00 $0.00
$0.00 $0.00
$0.2 $0.3 $0.00 $0.00
$0.3 $0.5 24.5% 12.0%
$0.9 $4.0
$1.7 15.0%
$9.8
Tax Rate
YOY Growth Net Margin
Diluted Shares Out
One time charge
Source: Company filings and Zacks Investment Research
2012 A (Dec)
FYA
$59.87
2013A (Dec)
2014E (Dec)
2015E (Dec)
FYE
$96.00
2016E (Dec)
FYE
$120.00
2017E (Dec)
FYE
$150.00
© Copyright 2014, Zacks Investment Research. All Rights Reserved.
Q1
$15.66
Q2
$15.60
Q3
$16.88
Q4
$18.32
FYA
$66.47
Q1
$18.18
Q2
$20.67
Q3
$22.00
Q4
$23.00
FYE
$83.85
37.7%
CoGS 33.03 8.41 8.45 8.71 9.16 34.73 9.47 10.43 11.22 11.70 42.82 48.00 60.00 75.00
Gross Margin 44.8% 46.3%
SG&A $23.34 $6.11
% SG&A
R&D
% R&D
Operating Margin
Other Net
39.0% 39.0%
3.3%
-0.1%
$7.16
45.9%
$6.04 38.7%
18.9%
$8.17
48.4%
$6.67 39.5%
23.0%
$9.16 $31.74 $8.71 $10.24 $10.78 $11.30 $41.03 $48.00 $60.00 $75.00 50.0% 47.7% 47.9% 49.5% 49.0% 49.1% 48.9% 50.0% 50.0% 50.0%
$7.31 $26.12 $7.69 $9.03 $9.50 $10.00 $36.22 $40.00 $44.50 $48.00 39.9% 39.3% 42.3% 43.7% 43.2% 43.5% 43.2% 41.7% 37.1% 32.0%
$0.62
$0.34
$0.65 $2.44 $0.63 $0.63 $0.65 $0.65 $2.56 $3.00 $3.50 $4.50
11.0%
16.1%
32.5%
30.3%
25.5%
26.2%
14.5%
25.0%
25.0%
$2.28 $0.84
3.8% 5.3% 3.9% 2.0% 3.5% 3.7% 3.5% 3.1% 3.0% 2.8% 3.1% 3.1% 2.9% 3.0%
($1.1)
$0.1
$0.0 0.0%
$0.1
- 0.1%
46.4
$0.00
$0.00
$0.1 $0.00
($0.3) ($0.2)
$0.0 $0.3
$0.0 $0.0 85.0% 0.0%
$0.0 $0.3
-99.5% -50.5% 0.0% 1.7%
50.9 53.7
$0.00 $0.01
$0.00 $0.00
$0.0 $0.3 $0.00 $0.01
($0.2)
$0.9
$0.0 3.1%
$0.9
($0.2) ($1.0) ($0.3) ($0.3) ($0.3) ($0.3) ($1.1) ($0.5) ($0.5)
$1.0 $2.2 $0.1 $0.3 $0.3 $0.4 $1.1 $4.5 $11.5
($0.5)
$22.0
$3.3 15.0%
$18.7
91.3% 12.5%
62.0
$0.30
$1.00
$19.7 $0.32
- - 2980.3% 3300.0% 0.4%
-57.9% 362.6% 146.8%
??HISTORICAL ZACKS RECOMMENDATIONS
????DISCLOSURES
The following disclosures relate to relationships between Zacks Small-Cap Research ( Zacks SCR ), a division of Zacks Investment Research ( ZIR ), and the issuers covered by the Zacks SCR Analysts in the Small-Cap Universe.
ANALYST DISCLOSURES
I, Grant Zeng, CFA, hereby certify that the view expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this research report. I believe the information used for the creation of this report has been obtained from sources I considered to be reliable, but I can neither guarantee nor represent the completeness or accuracy of the information herewith. Such information and the opinions expressed are subject to change without notice.
INVESMENT BANKING, REFERRALS, AND FEES FOR SERVICE
Zacks SCR does not provide nor has received compensation for investment banking services on the securities covered in this report. Zacks SCR does not expect to receive compensation for investment banking services on the Small-Cap Universe. Zacks SCR may seek to provide referrals for a fee to investment banks. Zacks & Co., a separate legal entity from ZIR, is, among others, one of these investment banks. Referrals may include securities and issuers noted in this report. Zacks & Co. may have paid referral fees to Zacks SCR related to some of the securities and issuers noted in this report. From time to time, Zacks SCR pays investment banks, including Zacks & Co., a referral fee for research coverage.
Zacks SCR has received compensation for non-investment banking services on the Small-Cap Universe, and expects to receive additional compensation for non-investment banking services on the Small-Cap Universe, paid by issuers of securities covered by Zacks SCR Analysts. Non-investment banking services include investor relations services and software, financial database analysis, advertising services, brokerage services, advisory services, equity research, investment management, non-deal road shows, and attendance fees for conferences sponsored or co-sponsored by Zacks SCR. The fees for these services vary on a per client basis and are subject to the number of services contracted. Fees typically range between ten thousand and fifty thousand USD per annum.
????POLICY DISCLOSURES
??© Copyright 2014, Zacks Investment Research. All Rights Reserved.
Zacks SCR Analysts are restricted from holding or trading securities placed on the ZIR, SCR, or Zacks & Co. restricted list, which may include issuers in the Small-Cap Universe. ZIR and Zacks SCR do not make a market in any security nor do they act as dealers in securities. Each Zacks SCR Analyst has full discretion on the rating and price target based on his or her own due diligence. Analysts are paid in part based on the overall profitability of Zacks SCR. Such profitability is derived from a variety of sources and includes payments received from issuers of securities covered by Zacks SCR for services described above. No part of analyst compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in any report or article.
ADDITIONAL INFORMATION
Additional information is available upon request. Zacks SCR reports are based on data obtained from sources we believe to be reliable, but are not guaranteed as to be accurate nor do we purport to be complete. Because of individual objectives, this report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed by Zacks SCR Analysts are subject to change without notice. Reports are not to be construed as an offer or solicitation of an offer to buy or sell the securities herein mentioned.
ZACKS RATING & RECOMMENDATION
ZIR uses the following rating system for the 1104 companies whose securities it covers, including securities covered by Zacks SCR: Buy/Outperform: The analyst expects that the subject company will outperform the broader U.S. equity market over the next one to two quarters. Hold/Neutral: The analyst expects that the company will perform in line with the broader U.S. equity market over the next one to two quarters. Sell/Underperform: The analyst expects the company will underperform the broader U.S. Equity market over the next one to two quarters.
The current distribution is as follows: Buy/Outperform- 16.0%, Hold/Neutral- 78.4%, Sell/Underperform ? 4.8%. Data is as of midnight on the business day immediately prior to this publication.
?