Thursday, May 07, 2009

International Flavors & Fragrances (NYSE:IFF): Upgrade to Buy at Keybanc

For the third day in a row, I'm going to highlight a call from Keybanc Capital Markets.

Keybanc is upgrading International Flavors & Fragrances (NYSE:IFF) to Buy from Hold with a $39 tgt. According to the firm the changes is based on confidence that their 2009 EPS outlook remains intact, noticeable underperformance relative to the specialty chemical sector and its major consumer products customers, comfort that the Flavors segment can generate some growth this year, and the potential for Fine Fragrances to bottom soon.


- 2009 Outlook Intact: They believe their 2009 EPS estimate of $2.50 remains intact although they now see lower interest expense and taxes offsetting weaker Fragrance results.

- Flavors – Remain in Positive Territory: Firm suspects Flavor segment growth is sustainable and they now are looking for 2% year-over-year growth in 2009 led by new product wins.

- Fine Fragrances Bottoming: They sense inventory destocking is starting to slow. While sales are expected to decline 20%+ in 2009 vs. 2008, IFF is doing a good job offsetting its highest profitability business with cost savings and new product wins in Functional Fragrances.

- 2010 - Good Recovery: Keybanc senses that cost savings and modest 2% sales growth in 2010 should get EPS back to $2.75 vs. an estimated $2.50 in 2009, which is good progress from its last trough earnings level at $1.40 in 2001.

- Valuation Has Lagged: Since March 9, IFF shares are up only 15% vs. a 34% rally in the S&P 500 and a 106% rally in specialty chemical coverage universe. IFF is trading below its average historical lows.

At current levels, IFF is trading at a 2009E EV/EBITDA multiple of 8.3x and a 2009E P/E of 12.0x. Over the last seven years, IFF has traded in an average low and high EV/EBITDA multiple range of 9.0x to 11.7x and average low and high P/E range of 14.0x to 19.4x.

Notablecalls: So what's so special about this call? Just another valuation + 'we think things may be turning' type of thing, isn't it?

Yes, youre right.

Yet, one thing about this market over the past couple of days is that people are looking for former laggards to bid up on anything positive. IFF hasn't been much of a performer and I suspect they will use this call to send it higher.

How high, you ask?

As usual, it's pretty much anyone's guess but waterpistol-to-head I'd say 5%+ upside may be in the cards in the very n-t.

1 comment:

notablecalls said...

The market went upside down just after open

IFF gapped 4-5%, so the trade at least for me was never triggered.

Should have highlighted something on the short side..maybe VZ/T downgrades from JPM that really made sense but the market just felt like it wanted to run over the bears once more.