McCormick & Company was founded in 1889 year and operates in spices, herbs and flavoring business. Company is a global market leader with the most important brands presented below:

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Company is growing both organically and through acquisitions.

Long term expectations:

  • Sales growth 4-6%
  • Operating income 7-9%
  • EPS 9-11%
  • Total shareholder return 11-13%

In my opinion quite ambitious. Sales is expected to grow well above population growth (due to acquisitions), which is not persistent in very long term. Moreover I don’t understand why margin should expand as it is a “commodity” business.

 

As it comes to financials (estimates):

Market cap ~ $12B

Net debt ~$1B

Payout ratio ~50%

Beta = 0.5

Dividend yield 1.8% + share buyback around 1%

 

Estimated valuation ratios:

EV/EBITDA = 18

P/E = 26

 

McCormick & Company is one of The Dividend Aristocrats paying increasing dividends since 1987 year. Currently dividend yield is around 1.8% – rather low from historical point of view and comparable to broad market. Additional 1% share buyback is nothing special in my opinion. On the other hand payout ratio is relatively low (due to acquisitions) so I see some upside potential.

 

Drawdown risk analysis:

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Shares are at all time high – not interesting for me. What’s interesting – company doubled cash flow from 2007 and share price adjusted for dividends almost quadrupled. It means that company went through rerating with multiples like P/E being doubled. I see absolutely no story at almost $100. I will have a closer look at $60 – $70.

 

Summing up, MKC is a very simple business with strong brands being a competitive advantage (product is a commodity). I see no story buying shares at current valuation but in case of global sell-off such business fits perfect to long term dividend growth portfolios.

 

Disclosure MKC – no position