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Reasons to Hold International Flavors (IFF) in Your Portfolio

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International Flavors & Fragrances, Inc. (IFF - Free Report) has been witnessing upward revisions for the past 30 days. The Zacks Consensus Estimate for earnings moved up 1.6% to $6.23 for 2018, which reflects investors’ optimism in the company’s bright prospects.

Also, International Flavors outpaced the Zacks Consensus Estimate in three out of the trailing four quarters, the average positive earnings surprise being 4.44%.

The company, with a market capitalization of approximately $15.1 billion, currently carries a Zacks Rank #3 (Hold).

Below, we briefly discussed the company’s potential growth drivers and possible headwinds.

Factors Favoring International Flavors

Price Performance

Shares of the company have outperformed the industry over the past six months. The stock has gained around 14% compared with the 2% loss recorded by the industry during the same period.

 



 

Return on Assets

International Flavors currently has a Return on Assets (ROA) of nearly 9% while the industry recorded ROA of 6%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.

Return on Equity

International Flavors’ trailing 12-month Return on Equity (ROE) of 21.8% reinforces its growth potential. The company’s ROE is higher than 16.8% recorded by the industry, highlighting the company’s tactical efficiency in using shareholders’ funds.

Growth Drivers in Place

International Flavors is likely to gain on growth in the global market for flavors and fragrances, propelled by increase in demand for a variety of consumer products, containing flavors and fragrances. Notably, the flavors and fragrances market is projected to grow approximately 2-3% by 2021, primarily driven by anticipated growth in emerging markets.

Further, the latest business wins and a diversified product portfolio worked in favor of International Flavors. Over time, the company made acquisitions, which helped it expand offerings and in turn profitability. In October 2018, it completed the acquisition of Frutarom. Together, International Flavors and Frutarom created a global leader in natural taste, scent and nutrition, with a broader customer base, more diversified product offerings and more exposure to end markets, including those with focus on naturals, and health and wellness. Frutarom is expected to be accretive to International Flavors’ top and bottom-line results in the fourth quarter of 2018.

In February 2017, the company entered 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. This initiative is anticipated to result in the reduction of approximately 370 members of its global workforce. By the end of 2019, the company anticipates this productivity program to yield annualized savings of $40-$45 million.

Headwinds

Over time, the company has been grappling with the adverse impacts of rising costs and expenses. Its cost of sales increased 9% over the year-ago comparable period in first nine months of 2018 due to higher input costs. In 2018, higher costs of raw materials across a range of categories are likely to continue impacting margins. Further, a disruption in the supply chain — including the inability to obtain ingredients and raw materials from third parties — is likely to adversely impact its business and financial results.

Bottom Line

Investors might want to hold on to the stock at present as it has ample prospects of outperforming peers in the near future.

Stocks to Consider

Some better-ranked stocks in the same sector are The Mosaic Company (MOS - Free Report) , Ingevity Corporation (NGVT - Free Report) and Cleveland-Cliffs Inc. (CLF - Free Report) .  While Mosaic currently sports a Zacks Rank #1 (Strong Buy), Ingevity and Cleveland-Cliffs carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Over the past 60 days, Mosaic has witnessed upward earnings estimate revisions of 10% for 2018. The company’s shares have rallied around 31% over the past six months.

Over the past 60 days, Ingevity has witnessed upward earnings estimate revisions of 3.5% for 2018. The stock has gained around 26% over the past six months.

Over the past 60 days, Cleveland-Cliffs has witnessed upward earnings estimate revisions of 38% for 2018. Its shares have gained 11% over the past six months.

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