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Why IFF Is Likely to End 2018 with Negative Returns

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IFF’s 2018 performance

International Flavors & Fragrances (IFF) stock is likely to end up with negative returns for investors in 2018. The real question is whether it can cut down on its losses. On a year-to-date basis, IFF has fallen 14.6% and underperformed the broader market S&P 500 Index (SPY), which has fallen 7.3%.

IFF’s peers Sensient Technologies (SXT) and Estée Lauder (EL) have fallen 25.5% and 0.25%, respectively, while the Clorox Company (CLX) has risen 2.0%.

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IFF has remained under pressure throughout 2018. Investors appeared to be unhappy with the company’s acquisition of Frutarom in the year, as many believed it to be an expensive deal. Frutarom’s acquisition has led IFF to increase its debt and issue new common shares. As a result, going forward, IFF’s interest expense is likely to rise, and IFF’s number of outstanding shares is also likely to rise.

On the other hand, IFF is likely to see cost synergies of $145 million over the next three years by way of this acquisition. IFF may prefer to fast-track these cost synergies, which could help it improve its earnings. IFF has also acquired a few sustainable ingredients to strengthen its Lucus Meyer Cosmetics business, which could help it improve its organic growth.

A strong fourth quarter and better guidance for 2019 could help the stock recover and potentially provide positive returns to investors in 2019.

Relative strength index and moving average

IFF’s relative strength index of 38 indicates that the stock is neither overbought nor oversold. The stock is trading ~4.6% below its 100-day moving average, indicating bearishness.

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