Personal Products Stocks

International Flavors & Fragrances Valuation – December 2015 Update $IFF

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how International Flavors & Fragrances (IFF) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): International Flavors & Fragrances Inc. (IFF) creates, manufactures and supplies flavors and fragrances for the food, beverage, personal care and household products industries either in the form of compounds or individual ingredients. The company operates in two segments: Flavors and Fragrances. Flavors segment offers flavor compounds that are sold to the food and beverage industries for use in consumer products, such as prepared foods, beverages, dairy, food and sweet products. Fragrances segment offers fragrance compounds, including fine and fragrance ingredients. The Company’s products are sold principally to manufacturers of perfumes and cosmetics, hair and other personal care products, soaps and detergents, cleaning products, dairy, meat and other processed foods, beverages, snacks and savory foods, sweet and baked goods, and pharmaceutical and oral care products.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of IFF – December 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,473,994,429 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.38 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 79.17% Pass
6. Moderate PEmg Ratio PEmg < 20 25.27 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.89 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.38 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.11 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

IFF value Chart December 2015

EPSmg $4.59
MG Growth Estimate 7.83%
MG Value $111.02
Opinion Fairly Valued
MG Value based on 3% Growth $66.60
MG Value based on 0% Growth $39.04
Market Implied Growth Rate 8.38%
Current Price $116.06
% of Intrinsic Value 104.54%

International Flavors & Fragrances qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.02 in 2011 to an estimated $4.59 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 8.38% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on International Flavors & Fragrances (IFF)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

IFF Charts December 2015

Net Current Asset Value (NCAV) -$8.44
Graham Number $48.47
PEmg 25.27
Current Ratio 2.38
PB Ratio 5.89
Dividend Yield 1.70%
Number of Consecutive Years of Dividend Growth 13

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $1,638,751,000
Total Current Liabilities $687,320,000
Long-Term Debt $1,057,992,000
Total Assets $3,911,685,000
Intangible Assets $1,255,361,000
Total Liabilities $2,319,813,000
Shares Outstanding (Diluted Average) 80,737,000

Earnings Per Share History

Next Fiscal Year Estimate $5.27
Dec14 $5.06
Dec13 $4.29
Dec12 $3.09
Dec11 $3.26
Dec10 $3.26
Dec09 $2.46
Dec08 $2.86
Dec07 $2.82
Dec06 $2.48
Dec05 $2.04
Dec04 $2.05
Dec03 $1.83
Dec02 $1.84
Dec01 $1.20
Dec00 $1.22
Dec99 $1.53
Dec98 $1.90
Dec97 $1.99
Dec96 $1.70
Dec95 $2.24

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.59
Dec14 $4.10
Dec13 $3.50
Dec12 $3.07
Dec11 $3.02
Dec10 $2.86
Dec09 $2.61
Dec08 $2.61
Dec07 $2.40
Dec06 $2.15
Dec05 $1.92
Dec04 $1.78
Dec03 $1.61
Dec02 $1.51
Dec01 $1.42
Dec00 $1.57
Dec99 $1.79

Recommended Reading:

Other ModernGraham posts about the company

19 Best Stocks For Value Investors This Week – 8/29/15
International Flavors & Fragrances Inc. Analysis – August 2015 Update $IFF
International Flavors & Fragrances Inc. Quarterly Valuation – May 2015 $IFF
28 Companies in the Spotlight This Week – 2/28/15
International Flavors & Fragrances Inc. Quarterly Valuation – February 2015 $IFF

Other ModernGraham posts about related companies

The Estee Lauder Company Valuation – October 2015 Update $EL
International Flavors & Fragrances Inc. Analysis – August 2015 Update $IFF
Estee Lauder Companies Analysis – August 2015 Update $EL
International Flavors & Fragrances Inc. Quarterly Valuation – May 2015 $IFF
Estee Lauder Companies Quarterly Valuation – April 2015 $EL
International Flavors & Fragrances Inc. Quarterly Valuation – February 2015 $IFF
Proctor & Gamble Annual Valuation – 2015 $PG
Kimberly Clark Corporation Annual Valuation – 2015 $KMB
Estee-Lauder Quarterly Valuation – January 2015 $EL
Avon Products Inc. Annual Valuation – 2015 $AVP

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

 

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