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Stock Analyst Note

International Flavors & Fragrances announced the sale of the company's pharma solutions business to Roquette for $2.85 billion, which we view as a fair price for the business. We assume IFF will receive $2.4 billion in proceeds after taxes and fees. Having updated our model to incorporate the deal, we maintain our $130 fair value estimate. Our wide moat rating is also unchanged. The stock was down 2% at the time of writing. At current prices, we view IFF as significantly undervalued, with the stock trading in 4-star territory and less than 65% of our fair value estimate.
Seth Goldstein
Stock Analyst Note

International Flavors & Fragrances announced a leadership change. Incoming CEO J. Erik Fyrwald will replace current CEO Frank Clyburn effective Feb. 6, 2024. The company is in the middle of a turnaround where the company will look to restore profits, while potentially divesting assets as a way to pay down debt. We think Fyrwald will continue this strategy. Accordingly, we see no reason to change our outlook for International Flavors & Fragrances. We maintain our $130 per share fair value estimate and wide moat rating for the company.
Seth Goldstein
Stock Analyst Note

International Flavors and Fragrances' third-quarter earnings exemplified our thesis on the stock. In the near term, IFF's specialty businesses, which generated around 75% of revenue in 2022, continued to recover from customer inventory destocking and cost inflation that have weighed on results over the past 18 months. Flavors, fragrances, and health and biosciences, IFF's three highest-quality businesses, all generated growth on both a sequential and year-over-year basis. This is in line with our view that the impact on IFF's profits of inflation and volume declines due to customer inventory destocking would prove temporary. We expect a further recovery in these businesses in the fourth quarter and into 2024.
Seth Goldstein
Stock Analyst Note

International Flavors & Fragrances announced amendments to its credit agreement that will give the company higher leverage ratio covenants over the next nine fiscal quarters through Sept. 30, 2025. In exchange, IFF will pay a slightly higher interest rate and is not allowed to raise its dividend. Based on our current forecast, we think IFF should be able to remain within the new covenants, especially by the end of 2024 as the company should close the sale of its Lucas Meyer cosmetic ingredients business by then. As part of the announcement, management reiterated full-year 2023 revenue and adjusted operating EBITDA guidance.
Seth Goldstein
Stock Analyst Note

International Flavors & Fragrances', or IFF's, second quarter shows markedly different results between the company's specialty ingredients businesses, which generate 75% of total sales, and the commodity functional ingredients business, which generates the remainder. Within specialty ingredients, IFF saw improving sequential profit margins as its strong pricing power, that underpins our wide moat rating, more than offset cost inflation.
Seth Goldstein
Stock Analyst Note

We maintain our $140 per share fair value estimate for International Flavors and Fragrances after updating our model to incorporate the company's first-quarter results. Our wide moat rating is also unchanged. IFF shares were down 10% at the time of writing as the market reacted negatively to both the company's weak start to 2023 and management’s second-quarter guidance below consensus expectations.
Seth Goldstein
Stock Analyst Note

Wide-moat International Flavors & Fragrances' shares are trading in 5-star territory, well below our $140 fair value estimate. Where the market sees caution, we view the current price as an excellent opportunity for long-term investors to pick up shares. We think the market is concerned that cost inflation will continue to hurt profits and is skeptical of management's long-term growth strategy.
Seth Goldstein
Stock Analyst Note

International Flavors and Fragrances' shares have underperformed since the start of 2022 as cost inflation weighed on profit growth. While the stock rebounded during the fourth quarter of 2022, shares fell 19% on Feb. 8, when the firm released its fourth-quarter earnings and cut 2023 guidance due to declining volumes. While we lowered our near-term estimates, we view the selloff as an overreaction to lower near-term profits.
Seth Goldstein

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