International Flavors & Fragrances (IFF) is a leading global maker of products used by other manufacturers to enhance the aromas and tastes of consumer products, asserts Matthew Miller, vice president of equity research at CFRA Research in the firm's flagship newsletter, The Outlook.

As of year-end 2020, IFF had 242 manufacturing facilities, creative centers, and application laboratories located in 47 different countries. IFF partners with customers to develop over 128,000 individual products that are provided to customers in approximately 200 countries.

Our Buy opinion is based on our positive long-term outlook. IFF is focused on R&D to drive product innovation and on cost controls to drive margin improvement.

We like the strategic rationale and long-term potential of the acquisition of Frutarom for $7.1 billion; although it has been dilutive to per-share metrics in recent quarters, we expect the acquisition to be accretive to earnings and cash flow per share starting in 2022.

More importantly, the strategic move to increase exposure to natural ingredients should result in a stronger long-term growth profile, in our view.

Our 12-month target of $169 is 25.0x our 2022 EPS estimate, a premium to IFF's three-year average forward P/E of 21.3x, justified by IFF’s strengthening competitive position.

We think IFF's valuation is supported by strong end-market demand and IFF’s leadership position. Following the acquisition of Dupont’s Nutrition and Biosciences (N&B) business, IFF now has the number one or two position in Taste, Scent, Nutrition, Cultures, Enzymes, Probiotics, and Soy Proteins.

Risks to our view include unfavorable changes in global economic conditions, negative currency fluctuations, competitive pricing pressure, and integration issues. The stock, yielding 2.2%, earns our 4-STARS, buy rating.

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