On Tuesday, Stifel maintained a Hold rating on International Flavors & Fragrances (NYSE:IFF) while increasing the stock price target to $85 from $80. This revision follows the company's announcement of the sale of its Pharma business for a deal that could reach $2.85 billion.
The transaction is valued at approximately 13 times the expected 2023 earnings before interest, taxes, depreciation, and amortization (EBITDA), including undisclosed earn-outs and a minor business within the Nourish segment.
The sale is perceived to align with market expectations, albeit the deal multiple is slightly below IFF's current trailing twelve-month (TTM) multiple of approximately 15 times, before accounting for potential dis-synergies.
The transaction is anticipated to substantially decrease the company's net debt relative to EBITDA by approximately 0.8 times, bringing it down to around 3.0 times by the end of 2025. This estimate assumes that the net proceeds of $2.4 billion will be fully utilized to reduce debt and that the deal will be finalized in the first half of 2025.
Looking further ahead, Stifel projects that the divestiture of the Pharma segment will have a modest impact on IFF's overall adjusted EBITDA margin and a limited effect on sales growth. From a strategic standpoint, the decision to offload the Pharma business is deemed logical due to its limited integration with IFF's other operations.
The updated price target of $85 is based on 13 times the estimated 2025 EBITDA, reflecting the anticipated benefits of decreased financial leverage and expected improvements in volume trends.
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