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Growth & Income

Todd Bunton

Sensient Technologies Corporation

SXT

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Sensient Technologies Corporation (SXT - Snapshot Report) carried its momentum into the first quarter of 2011 and delivered its 6th consecutive positive earnings surprise.

Revenues hit a record for the quarter and also came in higher than the Zacks Consensus Estimate.

Management also raised its full year guidance, prompting analysts to revise their estimates higher. It is a Zacks #2 Rank (Buy) stock.

First Quarter Results

Sensient recently reported first quarter earnings per share of 53 cents, beating the Zacks Consensus Estimates by a penny. It was a 10% increase over the same quarter in 2010.

Quarterly revenue rose 11% to a record $349.7 million, also beating the Zacks Consensus Estimate, which called for $342.0 million. Revenues in the Color Group, which accounted for 36% of total revenue, increased a solid 16% as all product lines experienced growth.

The Flavors & Fragrances Group, which made up 59% of total revenue, increased 8% on strong volume gains.

With all the fears of rising commodity prices squeezing margins, gross profit actually rose 60 basis points to 30.8% of revenue. Meanwhile, operating income was up 13%.

Increased Guidance

Management raised its guidance for 2011 following solid Q1 results. The company now expects to earn between $2.28 and $2.34 per, up from previous guidance of $2.26 to $2.32.

Analysts followed suit, raising their estimates for both 2011 and 2012, and propelling the stock to a Zacks #2 Rank (Buy).

The consensus estimates are currently projecting 10% EPS growth in each of the next two years. The Zacks Consensus Estimate for 2011 is $2.36, and the 2012 consensus estimate is $2.59.

Dividend

In addition to double-digit earnings growth, Sensient pays a dividend that yields 2.2%.

Over the last 10 years, the company has raised it at a compound annual growth rate of 4.7%. Its most recent hike came in February.

Sensient pays out approximately 38% of its earnings in dividends, which is slightly more than competitor International Flavors & Fragrances (IFF) at 32%. IFF's yield is also lower at 1.7%, however.

Valuation

Shares of SXT rose shortly after the latest earnings surprise but have pulled back to its pre-earnings level along with the overall market.

This could represent a buying opportunity.

The stock trades at 15.5x forward earnings, in-line with the industry average, but its price to book ratio of 1.8 is below the peer group multiple of 2.8.

Company Description

Sensient Technologies Corporation manufactures colors, flavor, and fragrances for food and beverage systems, cosmetic and pharmaceutical systems, inkjet and specialty inks and colors, and other specialty chemicals.

The company is headquartered in Milwaukee, Wisconsin and has a market cap of $1.8 billion.

Read the December 30 article here.

This Week's Growth & Income Zacks Rank Buy Stocks:

ABB Ltd. (ABB) recently reported a 21% increase in revenue for the first quarter of 2011 due to strong demand stemming from the global economic recovery. If consensus estimates materialize, EPS would grow by 32% in 2011 and 23% in 2012. The company also pays a dividend that yields 1.7%. Read the full article.

UMB Financial Corporation (UMBF) recently reported another solid quarter marked by growing non-interest income and solid credit quality. The company also pays a dividend that yields a solid 1.9%. Unlike many of its peers, UMB did not cut its dividend during the financial crisis. Read the full article.

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Alliance Holdings GP, L.P. (AHGP) reported a 13% positive earnings surprise on April 26 while also announcing its 12th consecutive quarterly distribution hike. It yields a solid 4.1%. Read the full article.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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