With Sensient Looking Tastier, Gabelli Upgrades To Buy

Sensient Technologies Corporation SXT, a manufacturer and marketer of colors, flavors, and fragrances for the food and beverage industry, reported fourth quarter results last week that, despite falling short of expectations, turned one analyst bullish.

The Analyst

Gabelli & Company's Sarah Donnelly upgraded Sensient Technologies' stock from Hold to Buy.

The Thesis

Sensient's earnings fell short of management's own guidance, but the report emphasized a brighter outlook moving forward, Donnelly said in a note. For instance, the company saw weakness across the flavor segment as total sales fell 3 percent on an organic basis and profit fell 16 percent. But trends in the business are expected to accelerate for multiple reasons, including easier comparisons, customer focus on new product innovation and moderating declines in the packaged food market.

A one-time $8 million cost in the quarter will not repeat itself and the company should realize $4 to $5 million in restructuring savings which would contribute to improved profitability, according to Donnelly.

Looking forward, the company's strong positioning within the $20 billion global flavor and fragrance industry makes in an attractive acquisition candidate, Donnelly said. The stock is trading at a discount to competitors and recent M&A transactions in the space.

Price Action

Shares of Sensient Technologies were trading higher by 2 percent at $69.48.

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