McCormick & Co’s limited 8.5% return over the last five years affirms our “Hold” call. We see better places for you to put your money even though the firm is shifting its focus toward more profitable products.
While the yield is solid, the shares trade at a high 30.0 times the company’s 2024 earnings forecast. That’s a price we consider high when considering its growth prospects.
MCCORMICK & CO. INC. (New York symbol MKC) makes spices, seasonings and flavours.
McCormick continues to shift its focus to more profitable products. The company is also benefiting as rising inflation prompts more consumers to eat at home instead of restaurants.
In its fiscal 2024 second quarter, ended May 31, 2024, McCormick’s sales fell 1.0%, to $1.64 billion from $1.66 billion a year earlier. That was partly due to the recent sale of a small canning business. Despite the drop, the latest figure still topped the consensus forecast of $1.63 billion.
If you exclude unusual items, earnings per share gained 15.0%, to $0.69 from $0.60. That also beat the $0.59 consensus estimate.
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McCormick still expects its earnings for all of fiscal 2024 will rise roughly 5% to between $2.80 and $2.85 a share. The stock currently trades at 30.0 times the midpoint of that range. That’s a somewhat high multiple as rising inflation and interest rates prompt cost-conscious consumers to switch to cheaper, generic brands of spices. McCormick’s exposure to China (the Asia/Pacific region supplies about 10% of its sales) is another risk factor due to that country’s slowing economy. The $1.68 dividend yields 2.0%.
The company has now increased the annual dividend rate each year for the past 38 years.
Recommendation in Wall Street Stock Forecaster: McCormick & Co. Inc. is a hold.
