This article originally appeared on RealMoney.com on Sept. 3, 2014 at 3:00 p.m. To read more content like this AND see inside Jim Cramer's multi-million dollar portfolio for FREE... Click Here NOW.
International Flavors and Fragrances (IFF) is a very high-quality name. Its balance sheet is quite strong and the low-beta shares have performed extremely well since the start of the bull market.
Management just boosted the quarterly payout by 20.5%, taking it from $0.39 to $0.47. At Tuesday afternoon's quote of $101.30, IFF's current yield was 1.86%.
The stock's earnings per share (EPS) dipped slightly during 2008's recession but have risen in the year since then. Value Line expects $5.00 per share in 2014, which would be a new record high, up almost 12% from $4.47.
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So, what's not to like? The company's valuation is simply too high.
During the four-year period from 2010 - 2013 IFF sold for a P/E of about 15.7x. The shares typically paid around 2.1% dividends. Tuesday's price reflects 20.2x the firm's 2014 estimate with a slightly sub-par 1.86% yield. Why buy now when IFF was avilable at better prices about 99% of the time since 2009?
Clearly there is room for this stock to fall, even if it avoids a full regression to its normalized multiple and yield. Independent analysis from Morningstar led them to a rare 2-star Sell rating. They feel fair value is only $88, about 13% below the present price.
Standard & Poor's estimate is a bit less pessimitic. It gives IFF a fair value estimate of $97.90. That still leaves the stock unattractive at north of $101.
Shareholders should consider locking in gains. Envious non-owners of IFF should wait for a sweeter smelling entry point.
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