We currently maintained a Neutral recommendation on New
International Flavors & Fragrances Inc.
). Long-term growth prospects are compelling for the company,
though near-term risks raise our concern.
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International Flavors & Fragrances Inc. is one of the leading
creators and manufacturers of fragrance and flavor products
operating primarily in the United States and internationally. The
company currently has a market capitalization of roughly $6.0
billion. Over time, the company has grown through new business
wins, wide product lines, continuous accomplishments in research
and intense consumer insight.
Moreover, slowly recovering global economy is likely to spur
consumer spending which we believe will be a prime growth
catalyst for the flavors and fragrances industry. Furthermore,
exposure to emerging markets is an added advantage for
International Flavors & Fragrances. In 2012, revenue derived
from the emerging markets reached 47% of total revenue on the
back of an 8% growth in business.
Efforts are being made to earn a greater share of customers'
business across multiple categories in both emerging and
developing regions. A new state-of-the-art liquid flavors and
fragrances manufacturing unit has been opened in Singapore, a
creative facility of Flavors has come up in India and about $50
million invested in Turkey for the expansion of a Flavors'
facility. The construction of another Flavors facility is
expected to be complete by the first half 2013 in China.
Over the long term, the company hopes to achieve around 4%-6%
expansion in local currency sales, attain about 7%-9% operating
profit growth and over 10% earnings per share growth.
It is the near-term concerns that keep us on the sidelines and
force us to maintain a neutral stance on the stock.
Lower-than-expected results in the fourth quarter along with a
sequential plunge in earnings and negative impacts from foreign
currency translation impaired our view on the stock. Cost
pressure though likely to abate, is still expected to vary from
flat to a slight increase in 2013.
We are skeptical about the financial health of the company. For
fiscal 2013 and 2014, we have an Earnings ESP (Read:
Zacks Earnings ESP: A Better Method)
of -0.9% and -2.5%, respectively.
Others Stocks to Consider
Other stocks to watch out for in the industry are
Inter Parfums Inc.
) with a Zacks Rank #1 (Strong Buy) while
Nu Skin Enterprises Inc.
Helen of Troy Limited
), each has a Zacks Rank #2 (Buy).