Sigma-Aldrich Corporation SIAL is expected to release its first-quarter 2015 results on Apr 23, 2015.
In the last quarter, this lab chemical and life sciences company had delivered a positive earnings surprise of roughly 4.6%. The beat came on the back of higher sales across all its business segments, led by the SAFC Commercial unit. Let’s see how things are shaping up for this announcement.
Factors to Consider
Sigma-Aldrich delivered a decent fourth-quarter 2014 with both earnings and sales coming in ahead of the Zacks Consensus Estimate. However, the company did not provide any guidance for 2015, given its proposed acquisition by Merck KGaA. The acquisition of Sigma-Aldrich by Merck KGaA, which is subject to specific antitrust and government approvals and other closing conditions, is expected to be completed by mid-2015.
Sigma-Aldrich is witnessing a modest improvement in end markets, especially Pharma. Weak spending from major pharmaceutical and biotech customers will tend to affect growth in its Research segment. Additionally, we believe premium life science reagent markets are intensely competitive, and Sigma-Aldrich’s commercial organization may still be too small, even after the recent expansion in the division.
Further, the company’s research business, especially with large pharmaceutical companies, is likely to continue facing economic challenges given the uncertainties across the U.S. and Europe. Its research sales remain affected by the funding uncertainties in the U.S. due to budget constraints, aggravated by the government shutdown.
To add to the woes, rising costs remain a concern for Sigma-Aldrich. The company’s operating expenses are expected to rise as it ramps up discretionary spending on items such as advertising. This will tend to weigh on the company’s operating margin in the quarter. Moreover, the SAFC Hitech business remains under pressure. Weak pricing for LED precursors continues to hurt this business.
However, Sigma’s significant investments in sales, marketing and R&D initiatives are driving demand for its products. The company plans to continue increasing its marketing, business development and R&D focus to fully leverage its sales force and continue with its growth efforts.
Earnings Whispers
Our proven model shows that Sigma-Aldrich is likely to miss earnings estimates this quarter. Customarily, as per our proprietary method, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to ensure an earnings beat prediction. That is not the case here as you will see below.
Zacks ESP: The Earnings ESP for Sigma-Aldrich is -1.85% – the difference between the Most Accurate estimate of $1.06 and the Zacks Consensus Estimate of $1.08 per share.
Zacks Rank: Sigma-Aldrich has a Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks that Warrant a Look
Here are some companies in the basic materials sector you may want to consider instead, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Cliffs Natural Resources Inc. CLF has an Earnings ESP of +15.79% and carries a Zacks Rank #3.
The Dow Chemical Company DOW has an Earnings ESP of +11.54% and carries a Zacks Rank #3.
Nucor Corporation NUE has an Earnings ESP of +7.14% and carries a Zacks Rank #3.
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