Oppenheimer Downgrades Sensient Technologies To Perform Following Earnings

Oppenheimer downgrades Sensient Technologies SXT to Perform from Outperform. The stock has had a nice run, up 40% in 2010, but down 6% YTD, while its 6.5% EPS guidance is below Oppenheimer's typical Outperform-rated names. SXT reported 4Q10 operating EPS of $0.52, up 9.4% YoY, $0.02 above its estimate. Revenue was 4% above Oppenheimer's estimate, but operating profit was only in line, due to margin contraction in Flavors, exacerbated by a $3MM inventory write-off. SXT introduced '11 EPS guidance of $2.26-$2.32, up 5-8%, Flavors revenue up mid-single digits, Colors up high-single to low double-digits. Oppenheimer trims its '11E EPS by $0.04 to $2.27 on higher revenue, but lower margin. Capex will continue to ramp, with 2-3 years of annual spending at $75MM-$80MM, with investments in natural colors and pharmaceuticals. SXT continues "to see excellent opporunities for growth" and remains bullish on natural colors for food and beverage. There is a multiplier effect on SXT as naturals require more volume. While the Flavors industry is highly fragmented, SXT is clearly the leader in Color and well positioned for this secular trend. Oppenheimer has a Perform rating on SXT SXT closed Friday at $33.79