IFF Resumed at Neutral After Portfolio Transformation
2022.08.11 22:42
IFF (IFF) Resumed at Neutral After Portfolio Transformation
By Sam Boughedda
A Citi analyst resumed coverage of International Flavors & Fragrances Inc (NYSE:IFF) with a Neutral rating and a price target of $126 per share on Thursday.
The analyst said they are resuming coverage of the stock after several transactions, including the acquisition of Health Wright Products and the completion of the divestiture of its Microbial Control business.
“IFFs portfolio has transformed over the past ~18 months, with the N&B acquisition and divestiture of non-core businesses like Microbial Control. We like the focus on accelerating growth in core markets while divesting non-core businesses. This focus should set up IFF for success, especially when inflationary pressures start to abate,” said the analyst. “The company iterated a three-pillar strategy portfolio maximization: invest to grow in high-returning areas, maximize performance in medium-returning areas, and optimize or exit lowest-return areas. Management plans to accelerate non-core divestitures, providing an outlook of 3 or 4 divestitures with estimated gross proceeds of $1.5-1.7bn helping service IFF’s debt and improve the capital structure.”
However, the analyst said they need to wait and see and are resuming coverage of the stock with three components to the thesis.
“(1) Continued uncertainty around inflationary pressures is dragging on the near-term outlook. Some areas of the business, like Scent, have struggled to offset RM inflation and the company expects continued pressure into 2023. (2) High net leverage of ~4.0-4.5x heading into a potential economic slowdown. While the business is somewhat resilient through cycles with end markets like food & beverage and pharma, we are still cautious as customers may downgrade mix and de-stock in areas like fragrances. (3) With the new CEO at the helm, we await more clarity on the strategy and additional portfolio actions,” wrote the analyst.
