International Flavors & Fragrances, Inc.

IFF Details

Launch of Wellness Program: International Flavors & Fragrances, Inc. (NYSE: IFF) is one of the leading players globally in food, beverage, scent, health and biosciences. It provides scents, tastes, experiences, ingredients and solutions for products. The market capitalization of the company as on 15 June 2021, stood at ~$36.64 billion.  As per a recent announcement, the company’s scent division has launched its Science of Wellness program to address consumer needs. The program is designed to guide the creation of scents that support consumer wellbeing, along with emotional, and physical benefits.

Q1FY21 Results Updates: The company reported impressive performance during the quarter with an increase of ~83% in net sales to $2.47 billion when compared to the prior corresponding period. The sales were driven by incremental sales due to the merger with Nutrition & Biosciences. Adjusting operating EBITDA stood at ~$569 million. It posted a loss before taxes on a reported basis at $54 million. It ended the period with a cash position of ~$879 million as of 31 March 2021.

Decent Cash Position as of Q1FY21 (Source: Analysis by Kalkine Group)

Key Risks: The onset of the COVID-19 pandemic has impacted the sector as the retail shops and eateries were closed due to social distancing norm and government regulations. The probable impact of the pandemic still lingers on with uncertainty in the near-term future. 

Outlook: IFF expects to generate sales of $11.25 billion in FY21 with an adjusted Operating EBITDA margin of ~23%. The management believes that it can achieve the target on the back of higher volumes, foreign exchange and pricing actions, which will help to reduce the higher raw material and logistics costs.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company has entered into an agreement to divest its fruit preparation business. The stock of IFF is trading close to its 52-weeks’ high levels of $148.77. The stock of IFF gave a positive return of ~32.72% in the past six months and a positive return of ~18.50% in the past nine months. On a technical analysis front, the stock of IFF has a support level of ~$139.139 and a resistance level of ~$148.921. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at a slight premium to its peer average P/E (NTM trading multiple), considering the robust increase in top-line, optimistic guidance and decent cash levels. For this purpose, we have taken peers such as McCormick & Company Inc (NYSE: MKC), Sensient Technologies Corp (NYSE: SXT), to name a few. Considering the current high trading levels and indicative valuation, recent rally in the stock price, loss before tax and the key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the closing price of $147.23, down by ~0.37% as on June 15, 2021.

IFF Daily Technical Chart, Data Source: REFINITIV

Sturm, Ruger & Company, Inc.

RGR Details

Q1FY21 Performance Update: Sturm, Ruger & Company, Inc. (NYSE: RGR) manufactures firearms for the commercial sporting market. The market capitalization of the company as on 15 June 2021, stood at ~$1.38 billion. In Q1FY21, the company posted net sales of $184.4 million, compared to sales of $123.6 million in the previous corresponding period. It has declared a dividend of 86 cents per share for the period and paid on 28 May 2021. The cash flow from operations stood at $27.8 million during the period. The cash and short-term investments stood at $146.1 million as of 3 April 2021, with no debt on the balance sheet.

Cash & Short-Term Investments (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business exposes it to prudent regulatory overview, which could impact the revenue prospects of the company.

Outlook: The company continued to focus on new product development initiatives and looks forward to exciting product launches in 2021. This includes the return of Marlin lever-action rifles, which RGR plans to commence shipping in the fourth quarter of FY21.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The assets to equity ratio of the company increased to 1.26x in Q1FY21, compared to 1.22x in Q1FY20. The stock of RGR is trading above its average 52-weeks’ levels of $90.74-$58.70. The stock of RGR gave a positive return of ~25.82% in the past nine months and a positive return of ~18.67% in the past six months. On a technical analysis front, the stock of RGR has a support level of ~$72.49 and a resistance level of ~$81.37. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at some discount to its peer median P/E (NTM trading multiple), considering the historical trading multiple of the company with respect to the Industry, decrease in current ratio and quick ratio. For this purpose, we have taken peers such as Smith & Wesson Brands Inc (NASDAQ: SWBI), Vista Outdoor Inc (NYSE: VSTO), to name a few. Considering the current high trading levels and indicative valuation, recent rally in the stock price, increase in assets to equity ratio and the key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing price of $78.92, down by ~0.18% as on June 15, 2021.

RGR Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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