Tags: Sigma-Aldrich | life | sciences | SIAL

Sigma-Aldrich: A Chemical Sector Play in Life Sciences

By    |   Monday, 25 June 2012 02:29 PM

Sigma-Aldrich (SIAL) trades in the chemicals sector but describes itself as a life sciences company. With good reason: More than 70 percent of sales is to labs doing research in the field. While sales are small dollars on average, analysts see SIAL as a well-managed firm with good prospects going forward.

Sigma-Aldrich develops, manufactures, purchases and distributes a broad range of high quality chemicals, biochemicals and equipment throughout the world.

These chemical products and kits are used in scientific research, including genomic and proteomic research, biotechnology, pharmaceutical development and as key components in pharmaceutical, diagnostic and other high technology manufacturing.

The company operates in 40 countries, manufacturing approximately 50,000 of the 167,000 chemical and biochemical products it offers. It also offers approximately 45,000 equipment products.

Sigma-Aldrich provides products that focus on two segments: research customers that use smaller quantities of its products in basic life science and high-technology research and development; and manufacturing customers that use products in larger quantities in lab-stage development and manufacturing.

“During 2011, products were sold to over 97,000 accounts representing over 1.3 million individual customers, including pharmaceutical companies, universities, commercial laboratories, industrial companies, biotechnology companies, non-profit organizations, governmental institutions, diagnostic, chemical and electronics companies and hospitals.”

“Orders in laboratory quantities averaging approximately $400 accounted for 71 percent of net sales in 2011.”

Sigma-Aldrich has a market cap of $8.68 billion in a sector, chemicals, where the average company size is $8.93 billion. Its trailing 12-month P/E ratio is 19.35 and its five-year projected price-to-earnings-growth (PEG) ratio is 2.30, compared to 1.49 for the sector.

Its projected earnings per share growth for the coming year is 9.23 percent, compared to a sector average of 14.43 percent.

Premium valuation

Analysts are mostly neutral on SIAL, with an outperform call from Standard & Poor’s Equity Research.

“We think SIAL deserves a premium valuation, as we view the company as an industry leader with a robust growth rate that we forecast to be better than the industry average,” S&P analysts wrote in early June.

“We also see improved stability in SIAL's end markets, particularly in high tech, in a challenging economic environment.”

Sigma-Aldrich next reports on July 24.

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