International Flavors and Fragrances, Inc.’s IFF Q3 results exemplified our theory about the stock. In the short term, IFF’s specialty business, which generated approximately 75% of its revenue in 2022, continued to recover from lower customer inventory and higher costs that had weighed on results over the past 18 months. IFF’s three top-quality businesses, Flavors, Fragrances, Health and Biosciences, all delivered growth on a quarter-over-quarter and year-over-year basis. This is consistent with our view that the impact on IFF’s profits from inflation and volume reductions due to customer inventory reductions is temporary. We expect these businesses to further recover in the fourth quarter and into 2024.
Our outlook remains largely unchanged, maintaining our IFF per share fair value estimate of $130. There is no change in the evaluation of wide mote. IFF stock rose 4% at press time on strong specialty materials performance and management guidance that adjusted EBITDA would be in the high end of its previous range.
At current prices, we believe IFF stock is significantly undervalued, with the stock in 5-star territory and trading more than 40% below our fair value estimate. The stock price remains slightly below the downside scenario. This scenario assumes sales will be roughly flat from 2023 levels, with little recovery in margins, with mid-cycle margins remaining in the low single digits, and IFF’s 10% This is significantly lower than the level in the mid-to-high range. Therefore, we believe that much of the bad news is factored into the stock price.
The author owns no shares in any securities mentioned in this article.
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