Stock (Symbol) |
McCormick (MKC) |
Stock Price |
$95 |
Sector |
| Food & Necessities |
Data is as of |
| October 27, 2016 |
Expected to Report |
| Jan 26 – 30 |
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 |
 Like many of the food stocks, shares of McCormick (MKC) rolled higher in the beginning of the year, then settled back down as they got overvalued. Still, McCormick is doing well Profits are expected to grow 9% this year even though sales are being trimmed by foreign exchange. 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. 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. Last qtr MKC was high with a P/E of 27. Now the stock’s down some since and now that I’m looking ahead to 2017 the P/E is 23. That’s lower, but still the stock’s not undervalued. McCormick is sitting at my 2017 Fair Value of $95 and in my opinion it could be here a year. Still, this is a solid buy-and-hold stock with an Est LTG of 9% a year plus a 2% yield, a high degree of safety, a stock buyback program, and a dividend that’s increased every year since 1987. Also, its annual reports are scented with spices. |
One Year Chart |
 Profits jumped 21% last qtr, blowing past the 12% estimate. Sales grew 3% last qtr or 6% on a constant currency basis. The company had a great grilling season with Grill Mates sales up 6%. Annual profit estimates stayed consistent with last qtr. Profit Estimates for the next 4 qtrs are 8%, 11%, 9% and 3%. The company has been beating by a little the last few qtrs so profits count rise around 9% the next year, which is also the Estimated Long Term Growth Rate. Still, 12% would be better and the strong dollar is really affecting American companies. It sucks. Next qtr’s estimate just declined from 12% to 8% this qtr as the company faces F/X headwinds and more acquisition activity, which takes cash that would have been spent on stock buybacks. |
Fair Value |
 This is a great company and I wish so much that I would have bought the stock around 2010 when the P/E was in the mid-teens. Then the last two years investors sought out dividend paying stocks and eventually overvalued them. |
Bottom Line |
 McCormick’s is a fantastic conservative stocks for retired investors and trust funds. The company has been around more than 100 years and still management runs a tight ship. The company keeps growing by acquiring other brands and inventing some new spices like roasted ground cinnamon and gingerbread spice. The company has an Est LTG of 9% per year and a 2% dividend that’s increased since the ’80s. The only issue is the stock’s selling right at my 2017 Fair Value and doesn’t offer a lot of near term appreciation potential. MKC ranks 31st of 35 stocks in the Conservative Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 31 of 35 |
