Sensient Technologies Corporation - Growth & Income

Sensient Technologies Corporation (SXT) recently delivered its fourth consecutive positive earnings surprise on strong revenue growth and operating income. The company has also been successful in thwarting rising raw material costs with price increases.

Following the strong quarter, management raised its guidance for 2010, prompting analysts to revise their estimates higher too. Although shares have been soaring since late August, valuation remains in check for this Zacks #2 Rank (Buy) stock.

Third Quarter Results

Sensient reported third quarter earnings per share of 57 cents, beating the Zacks Consensus Estimate by 4 cents. EPS increased 21.3% over the same quarter in 2009.

Total revenue was a record $340.9 million for Q3, a 12.4% increase year-over-year. Revenue for the Color group was up an impressive 20.3% while the Flavors & Fragrances segment saw a 6.4% increase.

The gross margin expanded from 30.7% of sales to 31.2% as Sensient was able to offset higher raw material costs with higher prices. Operating income was up 22.5% year-over-year as the company leveraged its fixed costs.

Guidance Raised

Management raised its guidance following the strong quarter. The company now expects to earn between $2.13 and $2.15 per share in 2010, up from previous guidance of $2.05 to $2.10.

Analysts also moved their estimates higher. The Zacks Consensus Estimate for 2010 is at the upper end of guidance at $2.15, representing 12% EPS growth. The 2011 estimate is 9% higher at $2.34. It is a Zacks #2 Rank (Buy) stock.

Dividend

Sensient has a dividend yield of 2.1%. The company has raised its dividend six times since 2000 at a compound annual growth rate of 4.0%.

Its payout ratio of 38% is slightly higher than its main competitor International Flavors & Fragrances (IFF) at 33%. IFF yields 2.0%.

Valuation

Shares have soared more than 35% since late August, yet valuation remains in check. The stock trades at 17.4x forward earnings, a premium to the industry average of 15.7x. However, its price to book ratio of 1.9 is below the peer group multiple of 2.4.

Company Description

Sensient Technologies Corporation manufactures colors, flavor, and fragrances for food and beverage systems, cosmetic and pharmaceutical systems, inkjet and specialty inks and colors, and other specialty chemicals. The company is headquartered in Milwaukee, Wisconsin and has a market cap of $1.9 billion.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
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