Stock (Symbol) |
McCormick (MKC) |
Stock Price |
$97 |
Sector |
| Food & Necessities |
Data is as of |
| February 16, 2017 |
Expected to Report |
| Mar 17-31 |
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) delivered 9% profit growth last year, meeting its long-term annual goal of 9-11%. 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 in 2016 returned 70% to shareholders through stock buybacks and dividends. The company just upped the dividend 9%, the 31st consecutive year of increases. Analysts give MKC an Estimated Long-Term Growth Rate of 9% and when you add in a 2% yield that’s a good deal for a stock with a high degree of safety. The only issue is the stock ran up the past few years as investors had an appreciation for safe dividend paying stocks. Thus, this $97 stock is slightly above my Fair Value of $94. |
One Year Chart |
 Like many food stocks, McCormick peaked last July when the P/E was 29, and has since settled down. The company had sales growth of 2% last qtr, and delivered 8% profit growth which missed estimates by just a penny. Profits were helped by a lower number of shares outstanding. The company lowered profit estimates for NxtQtr due to higher prices on some raw materials, and that nudged down 2017 estimates from $4.12 to $4.08. Qtrly Estimates for the next 4 qtrs are 1%, 9%, 5% and 13%. |
Fair Value |
 My Fair Value on MKC is 23x earnings, which is around where the stock traded the past 4 years. I don’t feel the stock is a good buy right here, and think investors should wait patiently for a pullback. |
Bottom Line |
 McCormick’s has been a solid yet not spectacular investment this past decade as the stock compounded at 10% per year. Longer-term the company has been delivering spices for more than 100 years and has solid management that runs a tight ship. But right now the stock is slightly overvalued and I recommend investors only take a half position here or wait for the stock to come down a bit. MKC ranks 30th of 30 stocks in the Conservative Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 30 of 30 |
