IFF Shares Rally on Amended Credit Agreements, Reaffirmed Outlook

We maintain our $140 fair value estimate for International Flavors & Fragrances IFF after the company announced amended credit agreements and reaffirmed first-quarter guidance. Our wide moat rating is also unchanged.

The shares were up around 4% at the time of writing as the market reacted positively to the March 27 news. However, we still view IFF as materially undervalued, trading in 5-star territory.

In our view, the market remains skeptical of management’s long-term guidance of 8%-10% adjusted EBITDA growth for 2024-26. For investors who share that skepticism, IFF still offers a solid margin of safety as the shares trade more than 10% below our downside scenario of a $100 fair value estimate. Our downside scenario assumes IFF’s long-term profits grow at roughly half of long-term guidance as management’s plans to increase revenue above market rates and implement cost savings fail to materialize.

IFF also announced plans for additional portfolio optimization efforts, which we interpret as divesting additional businesses. If IFF were to make additional divestitures, it would probably target lower-margin businesses like texturants, emulsifiers and sweeteners, and protein solutions. These three businesses, all of which are in the nourish segment, were identified by management as having low returns on invested capital, and management plans to greatly reduce growth investment in these areas. Should one of these businesses be divested, we imagine IFF is unlikely to receive a premium valuation, given the less attractive margins, but it would likely use the proceeds to pay down debt. We do not assume any additional transactions in our valuation until a deal is announced.