Morningstar

McCormick Has Solid Quarter, but Shares Not a Bargain

Securities In This Article
McCormick & Co Inc Registered Shs Non Vtg
(MKC)

Wide-moat

For fiscal 2017, management anticipates mid- to high-single-digit organic sales growth and adjusted earnings per share of $4.05-$4.13, a touch below our $4.23 expectation partly due to a slightly higher tax rate assumption. Even after incorporating a more modest near-term earnings outlook, we don’t foresee a material change to our $91 fair value estimate, outside of a $1-$3 increase to account for additional cash generated since our last update. Our long-term outlook, which calls for 4% sales growth--with just more than half of top-line growth each year resulting from higher volume and favorable mix and the remainder reflecting increased prices--and operating margins to approach 17.5% by the end of our 10-year explicit forecast (about 300 basis points above the average margin over the past five years), remains in place. However, with the shares trading at a premium to our valuation, we'd suggest investors await a more attractive entry point.

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About the Author

Erin Lash, CFA

Sector Director
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Erin Lash, CFA, is a sector director, AM Consumer, for Morningstar*. In addition to leading the sector team, she covers packaged food and household and personal care companies. Beyond managing a team of nine analysts and associates covering an array of consumer firms, Lash also conducts fundamental analysis of 13 multi-billion-dollar market capitalization firms in the packaged food and household and personal care space.

Before joining Morningstar in 2006, Lash spent four years as an investment analyst covering retail, transportation, and technology firms for State Farm Insurance. In this capacity, Lash analyzed financial statements, business strategy, and fundamentals of owned companies and potential investments, presenting her recommendations based on this analysis to State Farm portfolio managers for ownership consideration.

Lash holds a bachelor’s degree in finance from Bradley University’s Foster College of Business. She also holds a master’s degree in business administration, with concentrations in accounting and finance, from the University of Chicago Booth School of Business. Lash has completed the Chartered Financial Analyst® designation. She ranked second in the food and tobacco industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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