International Flavors & Fragrances Inc. (IFF) Quarterly Valuation
When a company rises in price, speculators can often be tempted to think the company will continue to rise.  After all, if it has performed well, then it’s going to keep performing well, right?  Intelligent Investors know that’s not necessarily true, and that Mr. Market often goes wild with some of his prices.  That’s why Benjamin Graham taught that we must base our analysis on the fundamentals of the company in an attempt to gauge the risk level of the company and determine an estimate of the intrinsic value of the company.  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.  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 specific look at how International Flavors & Fragrances, Inc. 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. The Company operates in two business segments: Flavors and Fragrances. Its Flavors business includes four categories of products: Savory, Beverages, Sweet, pharmaceutical and oral care (Sweet), and Dairy. Its Fragrances business consists of Fragrance Compounds and Fragrance Ingredients. The Company has 29 manufacturing sites around the world that support more than 36,000 products. Its manufacturing facilities are located in the United States, the Netherlands, Spain, Great Britain, Argentina, Brazil, Mexico, Australia, China, India, Indonesia, Japan and Singapore. In January 2014, International Flavors & Fragrances Inc. completed the acquisition of Aromor Flavors and Fragrances Ltd.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary
Key Data:
| Recent Price | $91.97 |
| MG Value | $69.66 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $51.87 |
| Value Based on 0% Growth | $30.41 |
| Market Implied Growth Rate | 8.60% |
| NCAV | -$3.12 |
| PEmg | 25.71 |
| Current Ratio | 3.21 |
| PB Ratio | 5.23 |
Balance Sheet – 9/30/2013
| Current Assets | $1,633,900,000 |
| Current Liabilities | $509,600,000 |
| Total Debt | $933,500,000 |
| Total Assets | $3,324,500,000 |
| Intangible Assets | $697,700,000 |
| Total Liabilities | $1,888,600,000 |
| Outstanding Shares | 81,590,000 |
Earnings Per Share
| 2013 | $4.47 |
| 2012 | $3.11 |
| 2011 | $3.28 |
| 2010 | $3.28 |
| 2009 | $2.47 |
| 2008 | $2.87 |
| 2007 | $2.82 |
| 2006 | $2.48 |
| 2005 | $2.04 |
| 2004 | $2.05 |
| 2003 | $1.83 |
Earnings Per Share – ModernGrahamÂ
| 2013 | $3.58 |
| 2012 | $3.09 |
| 2011 | $3.03 |
| 2010 | $2.87 |
| 2009 | $2.62 |
| 2008 | $2.61 |
Dividend History
IFF Dividend data by YCharts
Conclusion:
International Flavors & Fragrances Inc. is not suitable for the Defensive Investor because it is trading at high PEmg and PB ratios. Â The Enterprising Investor is not quite as picky though, and the company passes all of that investor type’s requirements. Â As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research to determine if the company would fit their individual portfolios. Â Such research should include reviewing ModernGraham Stocks & Screens to find other companies that pass the ModernGraham requirements. Â From a valuation perspective, the company appears to be overvalued presently. Â The company has seen growth in EPSmg (normalized earnings) from $2.61 in 2008 to $3.58 for 2013, but this demonstrated historical growth trails the market’s implied estimate of 8.6% growth in earnings. Â As a result, the ModernGraham valuation model returns an intrinsic value estimate that is below the market 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 Inc. (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.
If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: Â The author did not hold a position in International Flavors & Fragrances Inc. (IFF) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.
