Stock (Symbol) |
McCormick (MKC) |
Stock Price |
$91 |
Sector |
| Food & Necessities |
Data is as of |
| February 18, 2016 |
Expected to Report |
| Mar 22 – Mar 28 |
Company Description |
 MKC Incorporated manufactures, markets and distributes spices, seasoning mixes, condiments and other flavorful products to the food industry. MKC has two business segments: consumer and industrial. Under the Consumer segment, 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. In Europe, the Middle East and Africa (EMEA), its brands include the Ducros, Schwartz and Kamis brands of spices, herbs and seasonings, and a line of Vahine brand dessert items. In the Asia/Pacific region, it markets products under the McCormick and DaQiao brands In India, its majority-owned joint venture owns and trades under the Kohinoor brand. In the industrial business segment, it offers seasoning blends, spices and herbs, condiments, coating systems and compound flavors to food manufacturers and foodservice customers. Source: Thomson Financial |
Sharek’s Take |
 Investors have been seeking safe havens due to the stock market’s high volatility and poor performance so far in 2016, and safe consumer staple stocks like McCormick (MKC) have been hot. 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, Lawy’s & Adolph’s. 65% of total sales come from the Americas, 22% from Europe, Middle East & Africa, and 13% come from the Asia/Pacific region, thus the strong dollar has been crimping profits. Management projects long-term profit growth of 9% to 11% in addition to paying a 2% dividend, which has increased for 28 consecutive years. Value Line gives MKC a top rating for safety, in addition to perfect 100 ratings for price stability and earnings predictability. This is a wonderful stock, but its high right now, thus I will take profits and sell half my position. |
One Year Chart |
 MCK has been a solid investment for the last year, as many consumer staples have been. But notice the flat profit growth the company is delivering now. With the P/E at a ten-year high this is a good time to take profits and reduce my position. The slow growth looks to be temporary as profit growth is expected to accelerate to 13% and 12% three and four qtrs out. |
Fair Value |
 Here you can view the ten-year history of MKC’s P/E, note the highest median P/E has been 23. The overall spice market is expected to grow 6% a year overall the next 4 yrs. Management has a long-term target of 9% to 11% profit growth. Add in a 2% yield, and you get a possible 11%-13% estimated total return. But at 25x earnings, the stock is a little rich. My Fair Value is 22x profits, or $81. |
Bottom Line |
 During the past ten years McCormick management has used 30% of its cash flow on dividends, 20% on share repurchases, 30% on acquisitions and 20% on capital expenditures. The company is health conscious, with a goal of having 70% of its McCormick brand spices, herbs and extracts in the US non-GMO within a year. Also, 80% of its gourmet line with be organic, up from 10% today. McCormick’s ten-year chart looks fantastic, but growth is half what it was earlier in the decade and with the P/E at ten-year highs I’ll sell half my position. MKC ranks 32nd of 34 stocks in the Conservative Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 32 of 34 |
