Sigma-Aldrich Corporation (SIAL) is expected to release its fourth-quarter 2014 results on Feb 5, 2015.
In the last quarter, this lab chemical and life sciences company had delivered an earnings surprise of 0.00% after its profits slipped due to higher charges offseting a rise in the top line. Let’s see how things are shaping up for this announcement.
Factors to Consider
Sigma-Aldrich is already set for a buyout by Merck KGaA. On Sep 22, 2014, the company announced that Merck KGaA has agreed to acquire it for $17 billion. Under the terms of the deal, Merck KGaA will buy all of the outstanding shares of Sigma-Aldrich for $140 per share in cash.
The transaction was waiting for an antitrust clearance which Sigma-Aldrich recently received from the U.S. FTC. The U.S. antitrust clearance is subject to certain other conditions, including regulatory approval in additional jurisdictions. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) with regard to the proposed acquisition of Sigma-Aldrich expired on Dec 22, 2014, thereby completing the U.S. HSR Act antitrust notification and review requirement for its acquisition by Merck KGaA.
Sigma-Aldrich did not provide any guidance for 2014, given its proposed acquisition by Merck KGaA. However, the company expects revenues in the fourth quarter to be roughly $25–$30 million lower than its earlier guidance. Also, Sigma-Aldrich expects adjusted earnings per share to be around 5 cents lower than its previous expectation due to significant changes in currency exchange rates following Jun 30, 2014.
Sigma-Aldrich has leveraged its SAFC business into higher-growth life science research markets by revitalizing core product lines and adding new offerings through acquisitions and licensing arrangements. Recently, the SAFC business verified its expanded unit in Irvine, Scotland, that is responsible for the production of dry powder cell culture media.
Sigma-Aldrich’s significant investments in sales, marketing and research and development (R&D) initiatives are creating demand for its products. The company recently declared that its Research business unit has entered into an alliance with Vlaams Instituut voor Biotechnologie (“VIB”), a leading life science research institute based in Flanders, Belgium, to enhance the commercialization and supply of research tools. This will provide translational researchers with faster access to novel tools and technologies required for research.
Through this deal, Sigma-Aldrich strives to support the requirements of researchers and address the concerns of research reproducibility. This is the second collaboration made by Sigma-Aldrich for accelerating the commercialization of research reagents with VIB after a recent agreement with Scripps Research Institute on the same goal.
Sigma-Aldrich has also taken up cost control and plant process improvement measures. It is also effectively managing its working capital, contributing to healthy free cash flow generation. Earnings Whispers
Our proven model shows that Sigma-Aldrich is likely to beat earnings this season because it has the right combination of the two key components.
Zacks ESP: Sigma-Aldrich has an Earnings ESP of +0.92% – the difference between the Most Accurate estimate of $1.10 and the Zacks Consensus Estimate of $1.09. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Sigma-Aldrich currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Sigma-Aldrich’s Zacks Rank #3 and positive ESP make us reasonably confident of a positive earnings beat.
Stocks that Warrant a Look
Here are some other companies in the basic materials sector you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Compass Minerals International Inc. (CMP) has an earnings ESP of +2.60% and carries a Zacks Rank #1 (Strong Buy).
Daqo New Energy Corp. (DQ) has an Earnings ESP of +41.18% and a Zacks Rank #2 (Buy).
Cameco Corporation (CCJ) has an Earnings ESP of +24.14% and a Zacks Rank #2.
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