Seeking Alpha
Follows Benjamin Graham method, deep value, value, long only
Profile| Send Message|
( followers)  

When a company rises in price, speculators can often be tempted to think the company will continue to rise. After all, if it has performed well, then it's going to keep performing well, right? Intelligent Investors know that's not necessarily true, and that Mr. Market often goes wild with some of his prices. That's why Benjamin Graham taught that we must base our analysis on the fundamentals of the company in an attempt to gauge the risk level of the company and determine an estimate of the intrinsic value of the company. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how International Flavors & Fragrances, Inc. fares in the ModernGraham valuation model.

IFF Chart

IFF data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price$91.97
MG Value$69.66
MG OpinionOvervalued
Value Based on 3% Growth$51.87
Value Based on 0% Growth$30.41
Market Implied Growth Rate8.60%
NCAV-$3.12
PEmg25.71
Current Ratio3.21
PB Ratio5.23

Balance Sheet - 9/30/2013

Current Assets$1,633,900,000
Current Liabilities$509,600,000
Total Debt$933,500,000
Total Assets$3,324,500,000
Intangible Assets$697,700,000
Total Liabilities$1,888,600,000
Outstanding Shares81,590,000

Earnings Per Share

2013$4.47
2012$3.11
2011$3.28
2010$3.28
2009$2.47
2008$2.87
2007$2.82
2006$2.48
2005$2.04
2004$2.05
2003$1.83

Earnings Per Share - ModernGraham

2013$3.58
2012$3.09
2011$3.03
2010$2.87
2009$2.62
2008$2.61

Dividend History

IFF Dividend Chart

IFF Dividend data by YCharts

Conclusion:

International Flavors & Fragrances Inc. is not suitable for the Defensive Investor because it is trading at high PEmg and PB ratios. The Enterprising Investor is not quite as picky though, and the company passes all of that investor type's requirements. As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research to determine if the company would fit their individual portfolios. Such research should include reviewing ModernGraham Stocks & Screens to find other companies that pass the ModernGraham requirements.

From a valuation perspective, the company appears to be overvalued presently. The company has seen growth in EPSmg (normalized earnings) from $2.61 in 2008 to $3.58 for 2013, but this demonstrated historical growth trails the market's implied estimate of 8.6% growth in earnings. As a result, the ModernGraham valuation model returns an intrinsic value estimate that is below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on International Flavors & Fragrances Inc.? Where do you see the company going in the future? Is there a company you like better?

Disclosure: The author did not hold a position in International Flavors & Fragrances Inc. (NYSE:IFF) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Quarterly Valuation Of International Flavors & Fragrances Inc.