Will McCormick’s High Valuation Attract Investors?
As of September 28, 2017, McCormick (MKC) stock was trading at a one-year forward PE (price-to-earnings) multiple of 22.7x, which is well above the peer group average. Meanwhile, the company’s current valuation multiple is also higher than the S&P 500, which was trading a forward PE ratio of 18.1x on the same date.
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As stated above, McCormick’s current valuation is higher than our select group of peers. The company’s stock is trading above the peer group average of 16.9x. In comparison, J.M. Smucker (SJM), Kellogg (K), General Mills (GIS), Conagra (CAG), and Kraft Heinz (KHC) stock were trading at a valuation multiple of 13.3x, 15.5x, 16.7x, 18.0x, and 20.8x, respectively.
Is McCormick’s high valuation warranted?
McCormick continues to outperform its peers with its sales and EPS (earnings per share) growth rate. The company is among very few food stocks that have managed to report balanced top and bottom-line growth despite the challenging environment. McCormick remains on track to deliver strong sales and profitability growth in coming quarters due to new product launches and expanded distribution.
Analysts expect McCormick to register sales and EPS growth of more than 10% in fiscal 2017. Meanwhile, the company expects its top and bottom line to improve 9%–10% in fiscal 2017.