On Nov 1, we reiterated our Neutral recommendation on lab chemical and life sciences company Sigma-Aldrich Corporation ( SIAL). While the company should gain from acquisitions and expansion initiatives, we continue to tread with caution considering currency headwind and persistent challenges in its research business.
Sigma-Aldrich’s third-quarter 2013 revenues and adjusted earnings, reported on Oct 22, beat the Zacks Consensus Estimate. The company saw organic sales gain across all business units in the quarter. While Sigma-Aldrich backed its sales growth outlook for 2013, it raised the bottom end of its earnings guidance citing tax benefits.
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. It is actively expanding its foothold in the Asia-Pacific region, especially in the fast-growing emerging markets of India and China.
The BioReliance acquisition, which extended Sigma-Aldrich’s reach into the promising new market of biologic drugs, should add to its growth in 2013. The company also remains committed to offering returns to its shareholders through cash dividends and share repurchases. Sigma-Aldrich has returned $193 million to its shareholders in the first nine months of 2013 in the form of dividends and share repurchases.
However, Sigma-Aldrich’s research business, especially with large pharmaceutical companies, is expected to continue to face challenges due to weak academic spending in the U.S. and Europe. National Institutes of Health (:NIH) budget uncertainties and the impact of government spending cuts have weighed on the research business, exacerbated by the U.S. government shutdown. Uncertainty surrounding academic funding is expected to sustain through the balance of 2013.
Moreover, Sigma-Aldrich, which generates roughly 67% of its sales from the overseas markets, is highly exposed to currency headwinds. Foreign exchange headwind on earnings is expected to be around 10 cents per share for 2013.
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