International Flavors & Fragrances May 2014 Quarterly Valuation $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 5 Highest Dividend Yields Among Undervalued Enterprising Companies. 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 (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. 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 | $96.94 |
| MG Value | $86.66 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $59.21 |
| Value Based on 0% Growth | $34.71 |
| Market Implied Growth Rate | 7.62% |
| NCAV | -$2.89 |
| PEmg | 23.74 |
| Current Ratio | 3.24 |
| PB Ratio | 5.19 |
Balance Sheet – 3/31/2014
| Current Assets | $1,569,900,000 |
| Current Liabilities | $484,500,000 |
| Total Debt | $931,600,000 |
| Total Assets | $3,321,400,000 |
| Intangible Assets | $759,300,000 |
| Total Liabilities | $1,804,800,000 |
| Outstanding Shares | 81,220,000 |
Earnings Per Share
| 2014 (estimate) | $4.96 |
| 2013 | $4.32 |
| 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 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $4.08 |
| 2013 | $3.53 |
| 2012 | $3.09 |
| 2011 | $3.03 |
| 2010 | $2.87 |
| 2009 | $2.62 |
Dividend History
IFF Dividend data by YCharts
Conclusion:
International Flavors & Fragrances qualifies for Enterprising Investors but not for Defensive Investors.  The Defensive Investor is concerned with the high PEmg and PB ratios, but the company passes all of the requirements of the Enterprising Investor.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors by exploring the ModernGraham Valuation Index.  From a valuation perspective, the company appears to be overvalued currently, after growing its EPSmg (normalized earnings) from $2.87 in 2010 to only an estimated $4.08 for 2014.  This demonstrated level of growth does not support the market’s implied estimate of 7.62% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well below the market price at this time.
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.
Be sure to check out the previous ModernGraham valuations of International Flavors & Fragrances as well as dig through the Valuation Index to find other companies!
Disclaimer: Â The author did not hold a position in International Flavors & Fragrances (IFF) or in any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from wikipedia; this article is not affiliated with the company in any manner.
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IFF is a solid company. They have a monopoly share of their field of business and their will always be a need for them by many other companies no matter the market condition. Yes I agree it is not for the defensive investor and some could say their business is high speculative but I think they are on the middle ground here. Thanks for the writeup!