International Flavors and Fragrances Trades at a Premium to Its Peers



IFF’s forward PE ratio

On September 27, 2017, International Flavors and Fragrances (IFF) traded at a one-year forward price-to-earnings multiple of 23.0x compared to its peer Sensient Technologies’ (SXT) one-year forward price-to-earnings multiple of 21.0x.

Forward PE is one of the many valuation methods that consider future earnings at the time of valuations. This method gives investors an insight into companies that are operating in the same industry, and it compares the companies that are overvalued or undervalued.

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IFF trades at a premium

International Flavors and Fragrances (IFF) trades at a premium compared to its peer Sensient Technologies (SXT). IFF, which reported better-than-expected earnings in the first two quarters, is expected to continue the trend. Analysts expect IFF’s earnings per share (or EPS) for fiscal 2017 to be $5.78, which represents 4.9% growth over its fiscal 2016 earnings per share. 

As acquisitions and expansion drive its growth, analysts project IFF’s fiscal 2018 EPS to be $6.27, implying growth of 8.5% over its expected EPS for fiscal 2017.

On the other hand, Sensient Technologies’ fiscal 2017 EPS is predicted to grow 6.6% over fiscal 2016 to $3.42. Further, analysts foresee SXT’s fiscal 2018 earnings per share to be $3.79, which implies growth of 10.8% over its fiscal 2017 EPS. Because SXT’s EPS growth is better than IFF’s EPS growth, this differential indicates that SXT might have been undervalued.

Investors looking for indirect exposure to IFF can invest in the Materials Select Sector SPDR ETF (XLB), which invests 1.9% of its portfolio in IFF. The fund also provides exposure to Monsanto (MON) and Air Products and Chemicals (APD), which had weights of 6.4% and 4.8%, respectively, on September 27, 2017.


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