Life science company Sigma-Aldrich
Sales for the quarter grew 1.2% and for the first six months of 2006 were up 5.5%. Earnings grew about 12% for the quarter and were about flat for the six-month period. Six-month operating cash flow grew just a little more than 7%. Management also increased full-year 2006 earnings guidance to $3.90-$4.00, which represents expected growth of about 8% from 2005. It also expects total organic, or internal sales growth of 7%. Steady, but not spectacular.
To state that Sigma is well diversified in a number of areas is at times an understatement. That's because its diverse client base totals 60,000 accounts and more than a million individual customers which include hospitals, universities, and health-care firms. Its supplier base is puny in comparison though clearly large, at more than 10,000 firms.
The breadth of biochemical and organic chemical products it sells is also immense; in its most recent annual 10-K it stated that about 45,000 chemical products accounted for 60% of total sales last year. It also sells 30,000 equipment products. Finally, international sales make up about half of total sales. This scope could be considered an economic moat as it likely can't be easily replicated, but it can be cumbersome to maintain control over, as witnessed by a move to focus on customer-centric initiatives, the details of which are in the earnings release.
Regardless of concerns over the pure number of clients and product offerings, Sigma has a history of supplementing organic growth with bolt-on acquisitions; it completed the large acquisition of JRH last year and bought a Chinese distributor and another Irish firm during the second quarter. Overall, historical earnings growth has been impressive, coming in at 16% on average over the past five years and 11% over the past 10 years. Sales growth has averaged 10% and 6% over the same time frames.
Sigma-Aldrich is on my watch list, as are competitors Invitrogen
Plus, there are quite a few large-cap stocks trading with similar or better multiples with slightly better growth outlooks. For instance, another chemical company, Lyondell Chemical