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International Flavors & Fragrances’ Valuations Compared to Peer

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IFF’s forward price-to-earnings multiple

In this part of the series, we’ll compare International Flavors & Fragrances’ (IFF) valuation with one of its peers. As of March 26, 2018, IFF’s one-year forward PE (price-to-earnings) multiple was 21.3x, which means IFF is trading 21.3 times higher for its next one-year earnings. Its peer Sensient Technologies’ (SXT) one-year forward PE multiple is 17.9x.

Forward PE multiples can be used by investors to compare two or more companies operating in the same industry and see which companies are overvalued and which are undervalued.

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Is IFF overvalued?

Currently, IFF is trading at a premium to its peer SXT. Analysts expect IFF’s fiscal 2018 EPS (earnings per share) to be $6.20, an increase of 66.8% on a year-over-year basis. IFF’s earnings growth is expected to be driven by organic growth and continued cost and productivity initiatives. IFF could also benefit from the continued buyback of its common shares. In November 2017, IFF announced a new $300 million share repurchase program, indicating that it will continue its share repurchases. However, rising interest rates could have an adverse impact on IFF’s EPS.

Analysts are expecting SXT to report fiscal 2018 EPS of $3.52, implying a growth of 73.2% over fiscal 2017 earnings. Going by this, it would appear that IFF is overvalued compared to SXT.

Investors can indirectly hold IFF by investing in the iShares Edge MSCI Multifactor Materials (MATF), which has invested 1.5% of its portfolio in IFF. The fund also provides exposure to DowDuPont (DWDP) and LyondellBasell (LYB), with weights of 19.6% and 7.2%, respectively, as of March 26, 2018.

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