Andrew Bary

Sensient Technologies could be a winner from Health and Human Services Secretary Robert F. Kennedy Jr.'s campaign to phase out synthetic food dyes in favor of natural alternatives.

The Food and Drug Administration, a part of HHS, said Tuesday it will revoke the authorization of all synthetic food colorings within the coming weeks, while authorizing four food dyes derived from natural sources. That plays to Sensient's strength.

The maker of flavors, colors, and specialty ingredients is one of the largest producers of natural colors. They make up about 20% of its total revenue, which totaled about $1.6 billion in 2024. The overall color portfolio accounts for more than 40% of revenue.

Sensient is due to report its first-quarter earnings Friday. The stock rose 1.2% to $80.14 on Thursday after gaining 5% Tuesday.

When it reported its fourth-quarter results earlier this year, the company told investors to expect high single-digit to double-digit growth in currency-adjusted earnings per share this year. It forecast a range of earnings per share with a midpoint of $3.10 for 2025, saying revenue growth will be in the mid single digits.

Investors will be interested in whether the company changes those forecasts or comments on the outlook for the economy and the natural-color business when it discloses its results.

The company has a relatively high price/earnings ratio of 25 reflecting what Wall Street views as a solid market position enhanced by its natural-color exposure. The larger International Flavors and Fragrances trades for about 18 times projected 2025 earnings. International Flavors is valued at around $18 billion versus $3 billion for Sensient.

"While the earnings profile at Sensient has been relatively stagnant over the past 10 years, we believe that a secular growth story (underpinned by growth in natural colors), self-improvement, and balance sheet optionality sum to an attractive investment profile on a go-forward basis," wrote Baird analyst Ghansham Panjabi in a recent research note.

He rates the stock at Outperform with a target of $85 for the price. Few Wall Street analysts cover the company.

In an investor presentation, Sensient highlighted the opportunity from natural colors, noting that the vast majority of foods and beverages launched in 2024 used natural colors.

The company did note that Red No. 3, a synthetic color, makes up about 0.5% of its revenue. That dye, which has a cherry red color, is due to be phased out, according to an HHS news release earlier this week. Common alternatives include colors that use beets and red iron oxide, Sensient said.

Write to Andrew Bary at andrew.bary@barrons.com

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April 24, 2025 17:10 ET (21:10 GMT)

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