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IFF’s Valuation Compared to Its Peers

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One-year forward PE multiple

As of October 30, International Flavors and Fragrances (IFF) was trading at a one-year forward PE multiple of 23.7x. In comparison, Sensient Technologies (SXT) traded at a one-year forward PE multiple of 17.9x. The forward PE multiple takes future earnings into consideration.

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Is International Flavors and Fragrances overvalued?

International Flavors and Fragrances stock fell significantly when it announced the acquisition of Frutarom. International Flavors and Fragrances completed the acquisition. The stock is gradually recovering and increasing. Analysts expect International Flavors and Fragrances’ 2019 adjusted EPS to be at $5.88, which implies a decrease of ~1.2% over the expected adjusted EPS of $5.95. Analysts think that the acquisition of Frutarom is expensive. The interest expense is set to increase due to new debt used to finance the acquisition. The increase in common shares, which will be given to Frutarom shareholders, is expected to have a negative impact on International Flavors and Fragrances’ adjusted EPS. However, the company expects cost synergies of $145 million in three years, which will likely drive the growth.

Analysts expect Sensient Technologies’ adjusted EPS for 2019 to be $3.7—an increase of 4.4% over the expected adjusted EPS for 2018. Since International Flavors and Fragrances’ EPS growth is lower than Sensient Technologies’ EPS growth, it appears that International Flavors and Fragrances is overvalued compared to its peer.

Investors could hold International Flavors and Fragrances indirectly by investing in the iShares Morningstar Mid-Cap ETF (JKG). JKG has invested 0.8% of its portfolio in International Flavors and Fragrances. The fund also provides exposure to Rockwell Automation (ROK) and Textron (TXT) with weights of 1.2% and 0.75%, respectively, as of October 30.

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