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The lofty price paid by International Flavors & Fragrances Inc (NYSE:IFF) in a recent acquisition prompted an Argus analyst to move to the sidelines.
The Analyst
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Analyst John Staszak downgraded shares of International Flavors & Fragrances from Buy to Hold.
The Thesis
The flavor, frangrance and cosmetic actives producer recently committed $500 million to $1 billion to pursue new acquisitions by 2020 in a bid to boost revenues, Staszak said in a Friday note.
The analyst is concerned about the strategy's viability and said he suspects International Flavors & Fragrances could be paying too much for the growth.
The recently announced Frutarom Industries Ltd (OTC:FRUTF) deal was priced at $7.1 billion. The deal will not contribute to earnings in 2018 and will only add to earings modestly in 2019, the analyst said.
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Argus lowered its earnings per share estimate for 2018 from $6.26 to $6.20 and $6.80 to $6.70 in 2019. The reduction reflects gross margin pressure and a higher share count resulting from the Frutarom acquisition, Staszak said.
"IFF appears fairly valued at 19.9 times our 2018 EPS estimate compared to a five-year historical average range of nine to 25."
"We believe that this valuation adequately reflects the company's current growth prospects, as well as the modest benefits and high price of the Frutarom acquisition."
The Price Action
International Flavor & Fragrances shares have shed about 17 percent year-to-date.
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Photo courtesy of IFF.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.