Sigma-Aldrich (SIAL) is expected to release its third-quarter 2014 results ahead of the bell on Oct 23.
In the last quarter, the Missouri-based lab chemical and life sciences company delivered a 0.91% positive earnings surprise on healthy momentum in its Applied division.
Sigma-Aldrich has delivered positive earnings surprises in trailing four quarters with an average beat of 2.45%. Let’s see how things are shaping up for this announcement.
Factors to Consider
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 September quarter.
Strong momentum in Sigma-Aldrich's Applied division is expected to continue in the third quarter driven by healthy growth in the diagnostics and testing business. The BioReliance acquisition, which extended Sigma-Aldrich’s reach into the promising new market of biologic drugs, should also support its results.
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. Weak pricing for LED precursors continues to weigh on this business. The company expects Hitech sales to decline by double-digits through second-half 2014.
Moreover, organic sales growth in the SAFC Commercial segment in the third quarter is expected to be affected by some delayed orders, which have been pushed back to the fourth quarter and 2015.
We also expect Sigma-Aldrich to provide an update on its proposed acquisition by Germany-based Merck KGaA in its third-quarter call. Sigma-Aldrich, last month, announced that Merck KGaA has agreed to buy it for $17 billion. The merger will create a big player in the $130 billion global life sciences industry. The deal is expected to close in mid-2015.
Earnings Whispers
Our proven model does not conclusively show that Sigma-Aldrich is likely to beat the Zacks Consensus Estimate in the third 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 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.06.
Zacks Rank #3 (Hold): Sigma-Aldrich’s Zacks Rank #3 when combined with an ESP of 0.00% 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 companies in the chemicals space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Westlake Chemical Corp. (WLK) has earnings ESP of +2.58% and sports a Zacks Rank #1 (Strong Buy).
LyondellBasell Industries NV (LYB) has earnings ESP of +2.21% and holds a Zacks Rank #2 (Buy).
Ashland Inc. (ASH) has earnings ESP of +2.21% and holds a Zacks Rank #3 (Hold).
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