On May 9, we issued an updated research report on lab chemical
and life sciences company
). While the company should gain from acquisitions and expansion
initiatives, it faces persistent challenges in its research
business and currency headwinds.
Sigma-Aldrich, a Zacks Rank #3 (Hold) stock, reported mixed
first-quarter 2014 results on Apr 24 with adjusted earnings topping
the Zacks Consensus Estimate while sales missing the same. Profit
rose year over year as weakness in the company's research business
was offset by gains in other areas. Sigma-Aldrich reaffirmed its
sales and 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. It is actively expanding its foothold in the Asia-Pacific
region, especially in the fast-growing emerging markets of India
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.
Moreover, Sigma-Aldrich remains committed to offering returns to
its shareholders through dividends and share repurchases. The
company, in Feb 2014, announced a 7% hike in its quarterly dividend
to 23 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.
Uncertainty surrounding academic funding (in particular in the U.S.
due to sequestration) is expected to sustain through first-half
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.
Moreover, Sigma-Aldrich, which generates a major chunk of its
revenues from overseas markets, remains exposed to currency
Key Picks from the Sector
Other companies in the specialty chemicals space with favorable
Zacks Rank include
International Flavors & Fragrances Inc.
Sensient Technologies Corporation
) with all holding a Zacks Rank #2 (Buy).
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