Morningstar | Frutarom Deal Now Completed, International Flavors & Fragrances Is Modestly Overvalued; FVE Intact. See Updated Analyst Note from 07 Nov 2018
International Flavors & Fragrances reported solid third-quarter results as the company remains on pace to deliver healthy revenue and profit growth in 2018. Revenue increased 4.0% from the prior-year period to $908 million while adjusted operating income grew 8.7% to $173 million. Having updated our valuation model, our $138 per share fair value estimate and wide-moat rating are unchanged.At current prices, we view shares as modestly overvalued. We remain concerned that slowing demand growth from large, multinational CPG customers will weigh on the company's upward trajectory of profitable growth. Additionally, due to seemingly aggressive synergy targets, we are skeptical that the pricey Frutarom acquisition will ultimately prove value accretive. Regardless, we maintain a wide-moat rating, as the company's intangible assets and switching costs will remain in place for many years to come. In turn, this will allow its attractive ROIC profile to persist.
The focus during the earnings call was on details related to the consolidation of Frutarom, which will operate as a unique reporting segment. Our model now incorporates Frutarom contributions, starting in the fourth quarter this year. 2019 will be the first full year in which Frutarom's results are consolidated into International Flavors & Fragrances ' financials. We note that Frutarom's revenue growth ground to a halt in the third quarter, a surprise given the business' steep revenue growth in prior quarters. Regardless, the company's management team dismissed this as a temporary development and indicated the expectation that Frutarom's revenue growth will reaccelerate in the near term.
International Flavors & Fragrances is a creator and manufacturer of taste, scent and complementary adjacent products, including cosmetic active and natural health ingredients. The company's operating segments are Taste and Scent. The Taste segment develops a range of different flavors and taste offerings for its customers, most of which are tailor-made. The company's Taste business is comprised of various portfolios across flavor compounds, savory solutions, inclusions and nutrition and specialty ingredients. The Scent segment creates fragrance compounds and fragrance ingredients for the household and personal care products. The company also produces cosmetic active and functional ingredients for use in cosmetics.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.