Ghansham Panjabi, an analyst from Robert W. Baird, has initiated a new Buy rating on Sensient Technologies (SXT).
Ghansham Panjabi of Robert W. Baird has given a Buy rating to Sensient Technologies due to a confluence of factors.
Firstly, Sensient Technologies, a leading manufacturer of colors, flavors, and other specialty ingredients, has seen its stock reach a 10-year low, after underperforming considerably year-to-date. Panjabi notes that Sensient is a niche player in the deep-moated Ingredients/Additives industry, characterized by defensive markets with pricing power. This, combined with the anticipation of improved volume optics in 2024 due to fading destocking impact and an expected improvement in customer promotional activity, forms the basis of the rating upgrade.
In addition, Panjabi highlights that the shares of Sensient Technologies have been severely underperforming, resulting in a significant drawdown since the peak of November 2021. Despite this, he points out that Sensient is trading at a 10-year low, but the P/E multiple based on 2024E is compressed to 16x which is considerably lower than the global Ingredients & Additives peer group average of ~25x. Given the structural attractiveness of the Ingredients & Additives industry, due to high customer switching costs and intrinsic pricing power, Panjabi believes the risk:reward ratio for the shares is attractive. Therefore, he maintains a $70 price target based on ~21x 2024 estimated EPS, underlying the rating upgrade.
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Sensient Technologies (SXT) Company Description:
Sensient Technologies Corp. engages in the manufacture of colors, flavors, and fragrances. It operates through the following segments: Flavors and Fragrances Group; Color Group; and Asia Pacific Group segments. The Flavors and Fragrances segment includes beverage flavors, bionutrients, savory flavors, sweet flavors, natural ingredients, and fragrance compounds and ingredients. The Color segment comprises of natural and synthetic color solutions for the food and beverage, cosmetic, pharmaceutical, and industrial markets. The Asia Pacific segment markets product lines in the Pacific Rim under the Sensient name. The company was founded in 1882 and is headquartered in Milwaukee, WI.
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