On Aug 12, we issued an updated research report on lab chemical and life sciences company Sigma-Aldrich (SIAL). While the company is well placed to benefit from strategic investments, cost-control actions and expansion initiatives, it faces challenges in its research and SAFC businesses and currency headwinds.
Sigma-Aldrich, a Zacks Rank #3 (Hold) stock, reported mixed second-quarter 2014 results on Jul 24 with earnings narrowly beating the Zacks Consensus Estimate while sales missing the same. Profit rose year over year on healthy momentum in the company’s Applied division. Sigma-Aldrich modestly raised its earnings guidance for 2014.
Sigma-Aldrich’s significant investments in sales, marketing and R&D initiatives are generating demand for its products. The company is seeking to take advantage of country-specific opportunities by expanding its presence in high-growth emerging markets.
The BioReliance acquisition, which extended Sigma-Aldrich’s reach into the promising new market of biologic drugs, should add to its growth in 2014. The company has also taken up cost control and plant process improvement measures and is effectively managing its working capital, contributing to healthy free cash flow generation.
Sigma-Aldrich also remains committed to offering returns to its shareholders through dividends and share repurchases.
However, Sigma-Aldrich’s research business, especially with large pharmaceutical companies, is expected to continue to face challenges due to a still uncertain academic spending environment. Uncertainty surrounding academic funding is expected to sustain in the near term.
Sigma-Aldrich’s SAFC Hitech business also remains under pressure. Weak pricing for LED precursors continues to weigh on this business. Sigma expects Hitech sales to decline by double-digits in the second half. Moreover, organic sales growth in the SAFC Commercial segment in third-quarter 2014 is expected to be affected by some delayed orders, which have been pushed back to the fourth quarter and 2015.
Moreover, Sigma-Aldrich, which generates a major chunk of its revenues from overseas markets, remains exposed to currency headwinds.
Other Stocks to Consider
Other companies in the specialty chemicals space with favorable Zacks Rank include Green Plains Inc. (GPRE), Minerals Technologies Inc. (MTX) and Ferro Corporation (FOE). While both Green Plains and Minerals Technologies retain a Zacks Rank #1 (Strong Buy), Ferro Corporation holds a Zacks Rank #2 (Buy).