International Flavors & Fragrances Inc Valuation – January 2019 $IFF

Company Profile (excerpt from Reuters): International Flavors & Fragrances Inc., incorporated on December 6, 1909, creates, manufactures and supplies flavors and fragrances (including cosmetic active ingredients) used to impart or improve flavor or fragrance in a range of consumer products. The Company operates in two segments: Flavors and Fragrances. The 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. The Fragrances segment offers fragrance compounds and fragrance ingredients. Its cosmetic active ingredients consist of active and functional ingredients, botanicals and delivery systems to support its customers’ cosmetic and personal care product lines. The Company’s products are sold 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. As of December 31, 2016, the Company had 42 manufacturing facilities and over 70 creative centers and application laboratories located in over 35 countries that support over 35,000 products. Its manufacturing facilities are located in the United States, the Netherlands, Spain, Great Britain, Turkey, Brazil, Mexico, Australia, China, India and Singapore.


Downloadable PDF version of this valuation:

ModernGraham Valuation of IFF – January 2019

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 $14,388,233,724 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 9.16 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 56.57% Pass
6. Moderate PEmg Ratio PEmg < 20 28.17 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.73 Fail
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 9.16 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.70 Pass
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

EPSmg $4.79
MG Growth Estimate 2.52%
MG Value $64.90
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $69.46
MG Value based on 0% Growth $40.72
Market Implied Growth Rate 9.83%
Current Price $134.95
% of Intrinsic Value 207.92%

International Flavors & Fragrances Inc is suitable 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 has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $4.1 in 2014 to an estimated $4.79 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.83% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into International Flavors & Fragrances Inc revealed the company was trading above its Graham Number of $50.39. The company pays a dividend of $2.66 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 28.17, which was below the industry average of 45.62, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $16.77.

International Flavors & Fragrances Inc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $16.77
Graham Number $50.39
PEmg 28.17
Current Ratio 9.16
PB Ratio 2.73
Current Dividend $2.66
Dividend Yield 1.97%
Number of Consecutive Years of Dividend Growth 15

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $6,946,827,000
Total Current Liabilities $758,456,000
Long-Term Debt $4,331,242,000
Total Assets $9,615,542,000
Intangible Assets $1,538,439,000
Total Liabilities $5,577,593,000
Shares Outstanding (Diluted Average) 81,647,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.29
Dec2017 $3.72
Dec2016 $5.05
Dec2015 $5.16
Dec2014 $5.06
Dec2013 $4.29
Dec2012 $3.09
Dec2011 $3.26
Dec2010 $3.26
Dec2009 $2.46
Dec2008 $2.86
Dec2007 $2.82
Dec2006 $2.48
Dec2005 $2.04
Dec2004 $2.05
Dec2003 $1.83
Dec2002 $1.84
Dec2001 $1.20
Dec2000 $1.22
Dec1999 $1.53
Dec1998 $1.90

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.79
Dec2017 $4.58
Dec2016 $4.85
Dec2015 $4.56
Dec2014 $4.10
Dec2013 $3.50
Dec2012 $3.07
Dec2011 $3.02
Dec2010 $2.86
Dec2009 $2.61
Dec2008 $2.61
Dec2007 $2.40
Dec2006 $2.15
Dec2005 $1.92
Dec2004 $1.78
Dec2003 $1.61
Dec2002 $1.51

Recommended Reading:

Other ModernGraham posts about the company

International Flavors & Fragrances Inc Valuation – March 2018 $IFF
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International Flavors & Fragrances Inc Valuation – June 2016 $IFF
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International Flavors & Fragrances Valuation – December 2015 Update $IFF

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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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