Demand Analysis

KEY DEMAND FACTORS

• Price and Volume – Strong as they have increased together for over ten months
• Institutions and Mutual Funds – OK as 44% ownership leaves room for growth
• Inside Ownership – Good as CFO recently purchased 104 shares on open market

Ratio Comparison

			ACTUALS				5 Year Averages
	2002	2003	2004	2005	2006	2007	Actual	Projection
Valuation
P/E Ratio	24.2	34.8	37.2	35.6	26.7	39.7	34.80	37.29
Price to Sales	2.3	3.5	3.4	2.8	2.6	4.2	3.30	4.59
Price to EBITDA	13.5	19.8	20.8	18.7	13.9	21.6	18.95	20.81
Management Effectiveness
Return on Investment	10.87	11.32	9.39	8.48	8.98	9.58	9.55	12.85
Return on Equity	11.10	11.56	10.66	8.99	10.74	9.92	10.38	12.88
Financial Condition
Total Debt to Equity	0.00	0.00	0.08	0.00	0.15	0.00	0.05	0.00
Interest Coverage	1,987.67	N/A	126.80	92.55	39.34	926.00	296.18	1,285.99
Profitability
Gross Profit Margin	54.53	56.74	52.09	51.48	54.43	55.03	53.95	55.93
EBITDA Margin	16.72	17.63	16.46	14.95	18.71	19.42	17.44	22.15
Net Profit Margin	9.38	10.04	9.19	7.85	9.70	10.59	9.48	12.39
Dividend
Dividend Yield	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Payout Ratio	0.00	0.00	0.00	0.00	0.00	0.00	0.00	0.00
Growth
P/E/G							2.77	2.03

COMPARISONS

• Valuation – higher ratios justified by move away from property management only
• Management Effectiveness – lower projections indicate conservative model
• Financial Condition – projected ratios about the same as historical
• Profitability – projections are slightly lower indicating conservative model
• Dividend – payout will continue to be about the same
• Growth – historical ratio was extraordinary, but a P/E/G of 2.06 is very good

Earnings Projections

Neogen (NEOG)
Earnings Model ($000's)
	2007	2008E	2009E	2010E	2011E	2012E	Forecast
Revenue
Food Safety	46,956	56,347	67,617	81,140	97,368	116,842	20.0%
Animal Safety	39,182	45,059	51,818	59,591	68,530	78,809	15.0%
Total Revenues	86,138	101,407	119,435	140,731	165,898	195,651	17.8%
- COGS	38,735	45,320	53,024	62,038	72,585	84,924	17.0%
Gross Profit	47,403	56,087	66,410	78,692	93,313	110,726	18.5%
Less Expenses & Items
Sales and Marketing	18,463	21,232	24,417	28,080	32,292	37,136	15.0%
General and Administrative	9,301	10,975	12,951	15,282	18,033	21,278	18.0%
Depreciation	2,840	3,266	3,756	4,319	4,967	5,712	15.0%
Research and Development	3,295	3,559	3,843	4,151	4,483	4,841	8.0%
Total Expenses & Items	33,899	39,032	44,967	51,832	59,774	68,968	15.3%
EBIT	13,890	17,054	21,443	26,861	33,538	41,758	24.6%
- Interest Expenses	15	17	19	21	24	26	12.0%
Pretax Income	13,875	17,038	21,424	26,840	33,514	41,732	24.6%
- Income Taxes	4,750	5,963	7,499	9,394	11,730	14,606
Net Income	9,125	11,074	13,926	17,446	21,784	27,126	24.3%
Tax Rate	35.0%	35.0%	35%	35%	35%	35%
Dividends Paid	-	-	-	-	-	-
EBITDA	16,730	20,320	25,199	31,180	38,505	47,471	23.2%
Shares outstanding (000's)	13,791	14,343	14,916	15,513	16,134	16,779	4.0%
Diluted Shares outstanding	14,162	14,728	15,317	15,930	16,567	17,230	4.0%
Earnings Per Share
Basic	$0.66	$0.77	$0.93	$1.12	$1.35	$1.62	19.6%
Diluted	$0.64	$0.75	$0.91	$1.10	$1.31	$1.57	19.6%
Source: estimates

ASSUMPTIONS

• Both segment can conservative expect 15% or more growth
• Expenses growth will be equal to or slightly less than sales growth

Earnings History

Neogen (NEOG)
Annual Income Statements ($000's)
	2007	2006	2005	2004	2003	2002	I Yr.	5 Yr.
Revenue
Food Safety	46,956	34,951	28,156	27,567	26,476	20,970	34.3%	17.5%
Animal Safety	39,182	37,482	34,600	27,931	21,209	21,095	4.5%	13.2%
Total Revenues	86,138	72,433	62,756	55,498	47,685	42,065	18.9%	15.4%
- COGS	38,735	33,010	30,450	26,587	20,627	19,125	17.3%	15.2%
Gross Profit	47,403	39,423	32,306	28,911	27,058	22,940	20.2%	15.6%
Less Expenses & Items
Sales and Marketing	18,463	15,799	13,484	12,052	12,077	9,939	16.9%	13.2%
General and Administrative	9,301	7,414	6,938	5,022	4,146	4,178	25.5%	17.4%
Depreciation	2,840	2,417	1,703	1,402	1,136	1,071	17.5%	21.5%
Research and Development	3,295	2,988	2,729	2,893	2,914	2,252	10.3%	7.9%
Total Expenses & Items	33,899	28,618	24,854	21,369	20,273	17,440	18.5%	14.2%
Other Income	386	329	230	193	488	463	17.3%
EBIT	13,890	11,134	7,682	7,735	7,273	5,963	24.8%	18.4%
- Interest Expenses	15	283	83	61	-	3	-94.7%	38.0%
Pretax Income	13,875	10,851	7,599	7,674	7,273	5,960	27.9%	18.4%
- Income Taxes	4,750	3,822	2,670	2,575	2,486	2,015	24.3%	18.7%
Net Income	9,125	7,029	4,929	5,099	4,787	3,945	29.8%	18.3%
Tax Rate	34.2%	35.2%	35.1%	33.6%	34.2%	33.8%	-2.8%	0.3%
Dividends Paid	-	-	-	-	-	-
EBITDA	16,730	13,551	9,385	9,137	8,409	7,034	23.5%	18.9%
Shares outstanding (000's)	13,791	12,371	12,146	11,958	11,485	11,249	11.5%	4.2%
Diluted Shares outstanding	14,162	12,686	12,531	12,565	11,978	11,958	11.6%	3.4%
Earnings Per Share
Basic	$0.66	$0.57	$0.41	$0.43	$0.42	$0.35	16.4%	13.5%
Diluted	$0.64	$0.55	$0.39	$0.41	$0.40	$0.33	16.3%	14.3%
Source: Neogen Annual Reports & SEC Filings

NOTES

• Both areas have done well over five years
• Food safety is beginning to show explosive growth

Investor Summary

NEOGEN	Nasdaq:	NEOG
Diagnostic Substances	TARGET:	$37.07

Stock Data			Sales & Earnings	2007A	2008E	2009E
Price 12/19/2007	$25.57		Revenue (MM)	$86.1	$101.4	$119.4
52-Week Range	12.85 - 27.64		EBITDA (MM)	$16.7	$20.3	$25.2
Dividend Yield	0.0%		EPS (diluted)	$0.64	$0.75	$0.91
Capitalization			Value Measures
Shares Outstanding (MM)	14.16		Price/Earnings	39.68	40.95	40.78
Market Capitalization (MM)	$362.1		Price/Sales	4.20	4.47	4.66
Debt/Equity	0.00		Price/Book	3.94
Projections			Growth (5 Yr.)	Historical	Projected
12-Month Price Target	$30.79		Earnings	14.3%	19.6%
24-Month Price Target	$37.07		P/E/G	2.77	2.03
Annual Total Return	20.4%

KEY AREAS FOR GROWTH

• Food Testing – diagnostic products for both humans and animals
• Agricultural Efficiency – by improving animal health and nutrition
  

MAJOR RISK
Management must manage growth while improving ROI and profitability ratios.