Stock (Symbol) |
McCormick (MKC) |
Stock Price |
$95 |
Sector |
| Food & Necessities |
Data is as of |
| August 1, 2017 |
Expected to Report |
| Sept 28 |
Company Description |
 MKC Incorporated manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the food industry, its brands in the Americas include McCormick, Lawry’s and Club House. It also markets ethnic brands, such as Zatarain’s, Thai Kitchen and Simply Asia. Source: Thomson Financial |
Sharek’s Take |
 McCormick (MKC) is buying Reckitt Benckiser’s food business, which includes brands such as French’s mustard and Frank’s Red Hot sauce. McCormick overpayed for these brands, but won the bidding war, and gets Frank’s Red Hot –the best hot sauce on the market. French’s and Franks will become McCormick’s number two and three brands. I like this deal for McCormick, as it gives the company an opportunity of growth. I’ve always felt Frank’s Red Hot was underappreciated. The deal will mostly be funded by debt, which will curtail stock buybacks a bit, but is good for increasing EPS (profits). Founded in 1889 by Willoughby McCormick at age 25 from a room in a cellar, McCormick’s first products were root beer extract, flavoring extracts, fruit syrups & juices sold door to door. In the 1890s McCormick went into the spice business when it purchased a spice company and now the company celebrates its 126th year in business. Today, McCormick has 22% of the global spices & herb market in addition to other brands including Zatarain’s (also founded in 1889 in New Orleans), Old Bay Seasoning, Thai Kitchen, Simply Asian, Lawry’s & Adolph’s. New products/brands include Herb Grinders, Cajun Injector, and Gourmet Garden, a leader in chilled herbs. In 2016 company increased is dividend 9% — the 31st consecutive year of increases — and returned more than 2/3rd of cash from operations to shareholders. MCK has grown profits 9% a year during the past decade, in addition to paying a 2% yield. The stock has a P/E of 23, which is quite rich but justified. I feel the stock is fairly valued here, but offers investors considerable safety, in addition to potential low double-digit total returns long-term. |
One Year Chart |
 McCormick had nice profit growth of 9% last qtr, which whipped estimates of 1% growth. Sales increased 5%. I feel the declining U.S. dollar will help MKC keep beating the street. Qtrly Estimates for the next 4 qtrs are 4%, 13% and 11% and 5%. It’s conceivable this company could deliver 10% profit growth the net 4 qtrs — which would be very good. |
Fair Value |
 My Fair Value on MKC continues to be 23x earnings, which is along the top of the ten-year history. With interest rates low, P/Es should be high — and that’s the case here. My analysis points to a potential 11% total estimated return by next year — not bad for a safe 100 year old company. |
Bottom Line |
 McCormick’s is a safe and solid investment for conservative buy-and-hold investors. During the past decade the stock’s grown 10% per year in addition to paying a 2% yield. Although profits are growing less than 10% now, the dollar has declined some and that could help push profits over 10% in the coming qtrs. I like the deal for Frank’s Red Hot as is no doubt the best hot sauce there is and McCormick is excellent at expanding existing brands. Still, MKC ranks just 29th of 31 stocks in the Conservative Portfolio Power Rankings as it is fairly valued at this time. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 29 of 31 |
