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Will Sigma-Aldrich (SIAL) Keep the Earnings Streak Alive?

Zacks Equity Research

Sigma-Aldrich (SIAL) will release its second-quarter 2014 results ahead of the opening bell on Jul 24. Last quarter, the lab chemical and life sciences company delivered a roughly 2.9% positive earnings surprise as weakness in its research business was offset by gains in other areas.

Sigma-Aldrich has beaten the Zacks Consensus Estimate in the trailing 4 quarters with an average beat of 2.71%. Let’s see how things are shaping up for this announcement.
 
Factors to Consider this Quarter

Sigma-Aldrich's significant investments in sales, marketing and R&D initiatives are generating demand for its products. The company’s global supply chain initiatives should continue to provide support to its margins in the June quarter.

Strong momentum in Sigma-Aldrich's Applied division is expected to continue in the second quarter driven by healthy growth in the diagnostics and testing business. In the SAFC Commercial segment, the life science products business in expected to see improved growth in the second quarter. Sigma-Aldrich’s second-quarter results should also be supported by the BioReliance acquisition, which extended its reach into the promising new market of biologic drugs.

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. Uncertainty surrounding academic funding is expected to sustain in the near term.

Sigma-Aldrich's SAFC Hitech business also remains under pressure with continued decline in sales. Weak pricing for LED precursors continues to weigh on this business. The company expects Hitech sales to decline in the low double-digits for the balance of 2014.

Earnings Whispers
 
Our proven model does not conclusively show that Sigma-Aldrich is likely to beat the Zacks Consensus Estimate in the second quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
 
Zacks ESP: ESP for Sigma-Aldrich is +0.91% – the difference between the Most Accurate estimate of $1.11 and the Zacks Consensus Estimate of $1.10.
 
Zacks Rank #4 (Sell): Sigma-Aldrich’s Zacks Rank #4 when combined with an ESP of +0.91% makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other stocks in the basic materials sector you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
 
LyondellBasell Industries NV (LYB) has earnings ESP of +3.13% and sports a Zacks Rank #2 (Buy).

Potash Corp. of Saskatchewan, Inc. (POT) has earnings ESP of +2.27% and holds a Zacks Rank #3 (Hold).

Albemarle Corporation (ALB) has earnings ESP of +0.92% and retains a Zacks Rank #3 (Hold).

Read the Full Research Report on SIAL
Read the Full Research Report on POT
Read the Full Research Report on ALB
Read the Full Research Report on LYB


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