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:
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:
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