Best Ideas 2018 - NeoGenomics (NEO) with Gabelli Analyst Sara Wojda

Gabelli Research Analyst Sara Wojda discusses her best idea for 2018, NeoGenomics, Inc.

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Transcript: We are recommending NeoGenomics as our best idea for 2018.

Headquartered in Fort Myers, Florida, NeoGenomics is the leading pure-play oncology testing company, offering the most advanced and comprehensive testing menu in America.

The company has 80 million shares outstanding, closed at eight dollars and fifty nine cents per share, for an equity market cap of six hundred and ninety million dollars.

Management is confident that recent obstacles can be overcome. The Path Logic divestiture, hurricanes, revenue adjustments, and bad debt are all impacts that NEO plans to improve in 2018.

NEO continues to gain share in the 6 billion dollar US cancer testing market. Double-digit growth combined with double-digit reduction in cost per test has helped balance out reimbursement headwinds.

Pharmaceutical services will be a potentially large opportunity for NEO. Last quarter, revenues in this business grew 37% to 7 million dollars, while backlog grew 76% to 58 million dollars. The new lab in Geneva will help drive success in this business.

Although shares trade at a relatively small margin of safety to our current 2018 private market value of 10 dollars per share, we are confident that management will execute upon its strategy to propel the company’s growth.

We value NeoGenomics at 15.5x EBITDA and believe that one of the large reference labs, such as LabCorp or Quest, could add NEO to their portfolios. In 2017, we estimate NEO will generate $260 million of revenue, $35 million of EBITDA, and earn 10 cents per share. We calculate a 2018 PMV estimate of 10 dollars per share, rising to 12 dollars per share in 2019.

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