Stock (Symbol) |
McCormick (MKC) |
Stock Price |
$102 |
Sector |
| Food & Necessities |
Data is as of |
| July 28, 2016 |
Expected to Report |
| Sept 29 – Oct 3 |
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 |
 Shares of McCormick (MKC) were red-hot for a year as value stocks outperformed growth stocks. Now it seems the pendulum has swung the other way, and I feel MKC now needs to come down a bit. 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. Both management and analysts estimate 2016 profit growth of 8%, which includes a 3% haircut from negative currency. Add in a 2% yield and that’s decent growth for a conservative stock. The issue is MCK’s P/E of 27 is a lot higher than the 21 to 23 the stock had the past few years. Still, this is a great buy-and-hold stock with a high degree of safety and a dividend that’s increased every year since 1987. |
One Year Chart |
 Sales grew 4% last qtr or 6% on a constant currency basis. Profit growth was flat due to a higher tax rate and unfavorable currency. Profit growth is expected to jump from 0% last qtr to 12%, 12%, 9% and 8% the next 4 qtrs. That’s accelerating growth and could be a catalyst for the stock. But we still have to deal with the 27 P/E, which is high. |
Fair Value |
 Looking back at the last ten years, this stock went from having a 23 P/E to 14 then back to 23. Now with a 27 P/E, I feel MKC could either come down a bit or trade sideways for a year. Nice dividend yield of 2% though. |
Bottom Line |
 McCormick’s is a solid stock that has produced safe double-digit returns in addition to a 2% dividend. Management makes great use of cash flow, and has used 30% on dividends, 20% on share repurchases, 30% on acquisitions and 20% on capital expenditures the past decade. Profit growth set to accelerate, and that could give the stock a boost short-term. But long-term appreciation is below par as the P/E is high. MKC ranks 36th of 38 stocks in the Conservative Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 36 of 38 |
