International Flavors & Fragrances Inc. IFF is poised to gain from growth in global market for flavors and fragrances, acquisitions, costs and productivity initiatives as well as diverse product portfolio. However, input-cost inflation, unfavorable foreign-currency translation and huge debt levels are near-term concerns.
Below, we briefly discuss the company’s potential growth drivers and possible headwinds.
Factors Favoring International Flavors
Positive Growth Projections
The Zacks Consensus Estimate for the current-quarter earnings is pegged at $1.56, reflecting estimated year-over-year growth of 1.3%. For 2020, the Zacks Consensus Estimate for earnings is pegged at $6.81, highlighting year-over-year increase of 9.7%.
Estimates Moving Up
Annual estimates for International Flavors’ earnings per share have moved up in the past 30 days, reflecting analysts’ confidence in the stock. During this period, the Zacks Consensus Estimate for 2019 earnings per share moved up nearly 4% to $6.20. The same for 2020 also moved 5% north to $6.81.
International Flavors’ trailing 12-month EV/EBITDA ratio is 14.9, while the industry's average trailing 12-month EV/EBITDA is 22.9. Consequently, the stock is cheaper at this point based on the ratio.
Growth Drivers in Place
International Flavors is likely to gain from growth in the flavors and fragrances’ global market, aided by surge in demand for a variety of consumer products, containing flavors and fragrances. Notably, the flavors and fragrances market is projected to be up approximately 2-3% by 2021, primarily driven by anticipated growth in emerging markets.
Furthermore, the company’s latest business wins and a diversified product portfolio will work in favor of International Flavors. Over time, the company has made acquisitions, which helped expand its offerings and profitability. Last October, International Flavors completed the acquisition of Frutarom. Together, International Flavors and Frutarom have created a global leader in natural taste, scent and nutrition, with a broader customer base, more diversified product offerings, and greater exposure to end markets. The company’s Frutarom division has also acquired several companies like Mighty, Leagel and Wiberg, and expanded its product offerings.
International Flavors’ focus on driving efficiencies through costs and productivity initiatives, margin improvement, acquisition-related synergies and favorable taxes will drive overall profit. In February 2017, International Flavors entered into a multi-year productivity program, designed to improve overall financial performance. This initiative will enable the company to check costs, make investments and expand businesses globally. It projects this productivity program to yield annualized savings of $40 million by the end of 2019.
Few Headwinds to Conquer
The company’s margins remain under pressure due to raw-material cost inflation. This apart, continued geopolitical tension and uncertainties regarding trade wars are other concerns. Further, the company's presence in international markets has exposed it to currency-translation risks. Also, to fund the Frutarom acquisition, the company has borrowed $3.3 billion of debt. The higher interest burden may have a negative impact on the ongoing year’s earnings per share.
Investors might want to hold on to the stock, at present, as it has ample prospects for outperforming peers in the near future.
International Flavors & Fragrances Inc. Price and Consensus
International Flavors & Fragrances Inc. price-consensus-chart | International Flavors & Fragrances Inc. Quote
Zacks Rank & Key Picks
International Flavors currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space are Kinross Gold Corporation KGC, Alamos Gold Inc. AGI and Arconic Inc. ARNC, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kinross has an expected earnings growth rate of a whopping 160% for 2019. The company’s shares have surged 80.7% in the past year.
Alamos Gold has an outstanding projected earnings growth rate of 320% for the current year. The company’s shares have rallied 60.8% in a year’s time.
Arconic has an estimated earnings growth rate of 50% for the current year. Its shares have moved up 19.1% in the past year.
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