Materials testing specialist ALS (ASX: ALQ) reports fiscal 2026 earnings on May 18, 2026. We forecast underlying NPAT of $354 million, or $0.70 EPS, a 15% increase on fiscal 2025. Our $0.41 DPS forecast assumes an $0.22 final and equates to a 2% yield at the current share price.

Why it matters: Our forecast for strong fiscal 2026 earnings growth is in accord with company guidance for 52% of NPAT to come in the second half. Globally, the testing and inspection certification industry enjoys favorable structural trends, including an ongoing shift toward outsourced testing.

  • Tightening regulatory standards and the energy transition add to the tailwind. ALS’ high-quality testing services across critical food and pharmaceutical regulation underpin the life sciences segment.
  • In its last update, ALS increased fiscal 2026 organic revenue growth guidance to 6%-8% from 5%-7%, and we remain at the high end. It was also well on track to meet fiscal 2027 strategic targets, including $3.3 billion in revenue and $600 million EBIT.

The bottom line: We increase our fair value estimate for narrow-moat ALS by 4% to $16.70, primarily due to the time value of money. At around $20.80, shares remain overvalued. The market expects too much from the commodities segments.

  • Our fair value assumes a 5-year group EBITDA CAGR of 10% to $1.0 billion by fiscal 2030. This includes 6% CAGR from commodities, and a much stronger 12% CAGR from life sciences. We assume a group midcycle EBITDA margin of 22%.
  • Our EBITDA margin assumption is slightly ahead of first half fiscal 2026’s 21.3%. We expect segment margin gains to be tempered by faster growth from lower-margin life sciences segment. Life sciences margins have trended nearer to 23% versus commodities at 35%.

Between the lines: Our fiscal 2027 revenue and EBIT targets of $3.5 billion and $650 million are 17% and 8% ahead of company targets. We think ALS will exceed on the revenue side given favorable life sciences trends.

Strong earnings growth anticipated for ALS

ALS is a global provider of analytical testing and inspection services. While dominating the fragmented Australian market, and being a large global player in commodity and environmental testing, it is regardless trumped by the majors, Bureau Veritas, SGS, and Intertek in nondestructive testing and inspection.

Services include laboratory testing for the mineral, coal, environmental, food, and pharmaceutical segments. Excellent reputation, technical capabilities, a global network, and established relationships with global clients are key advantages over often fragmented competitors. It is the service and ability to meet customer requirements in a cost-effective way that helps ALS retain clients and expand the existing business. Earnings volatility from exposure to more cyclical commodity markets, particularly exploration, has declined, as pharmaceutical and environmental testing has grown in importance.

ALS’ global network of more than 450 offices across 70-plus countries provides a geographically diverse revenue base: 28% Asia-Pacific, 34% Americas, 35% EMENA, and the balance Africa. This global network reduces region reliance and gives ALS the capability to leverage experience across borders and serve an international client base.

During the 2000s mining boom, the minerals division was the growth engine. EBIT almost doubled within two years, and minerals still accounts for just over half of group EBIT. It provides services across the exploration, expansion, and production stages. These include sample preparation, quantity and quality analysis, grading and process plant control/optimization, and preshipment inspection across a vast range of minerals and commodities such as gold, silver, platinum, iron ore, nickel, bauxite, and uranium. ALS charges market-leading prices for superior service, reputation, and timeliness.

ALS life sciences undertakes environmental, pharmaceutical, and food testing. The flow-on impacts of population growth, and developing world urbanization driving public and private infrastructure expansion, are expected to increase demand in these areas. So too the ongoing shift toward outsourced testing and tightening regulatory standards.

Bulls say

  • ALS has diversified its earnings base to mitigate exposure to more cyclical commodity markets. Expansion into food and pharma testing, as well as inspection and certification markets, should provide growth despite a significant slowdown in minerals testing.
  • Large clients are unlikely to move away on price alone, with quality and skills essential requirements.
  • Exposure to mineral and coal testing could once again provide earnings growth if the global economy’s appetite for commodities dictated.

Bears say

  • Earnings tied to exploration are vulnerable to how quickly exploration can be switched off, either due to a lack of funding or a pullback in demand/prices making projects less attractive.
  • Restricted funding and lower commodity demand could see demand for ALS’ mineral services dry up, increasing pricing competition and reducing scale benefits, both contributing to lower margins.
  • Better service and processes have helped ALS build a good reputation for accuracy and timeliness. An improvement in analytic services provided by competitors may make its prices more difficult to justify.