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We have reaffirmed our Neutral recommendation on lab chemical and life sciences company Sigma-Aldrich Corporation (SIAL - Analyst Report). While acquisitions and expansion initiatives in high growth markets are expected to drive its results this year, we take a cautious stance considering the lingering weakness in the company’s research business.
Sigma-Aldrich’s first-quarter 2013 adjusted earnings, reported on Apr 25, beat the Zacks Consensus Estimate while sales met. Revenues rose modestly year over year as gains from acquisitions were partly offset by the impact of unfavorable currency swings and fewer shipping days. Sigma-Aldrich backed its guidance for 2013.
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, in Feb 2013, announced a roughly 8% hike in its quarterly cash dividend to 21.5 cents per share.
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. The company expects uncertainty surrounding academic funding (in particular in the U.S. due to sequestration) to sustain through the remainder of 2013.
Moreover, Sigma-Aldrich, which generates roughly 67% of its sales from the overseas markets, is highly exposed to currency headwinds. Unfavorable currency translation may continue to weigh on the company's revenues and earnings moving ahead.
Other Stocks to Consider
Other companies in the specialty chemical space with favorable Zacks Rank are American Vanguard Corp. (AVD - Snapshot Report), Ferro Corp. (FOE - Snapshot Report) and Minerals Technologies Inc. (MTX - Snapshot Report). While American Vanguard holds a Zacks Rank #1 (Strong Buy), both Ferro and Minerals Technologies retain a Zacks Rank #2 (Buy).