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Comparing Valuations for McCormick and Its Peers

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Valuation summary

On June 20, 2017, McCormick (MKC) was trading at a 12-month forward PE (price-to-earnings) ratio of 24.3x, which is higher than the current multiples of our select peer group. The company is also trading at a higher multiple than the broader index.

On the same date, the forward PE ratio of the Consumer Staples Select Sector SPDR ETF (XLP) was 21.7x, while the S&P 500 (SPX) was trading at a multiple of 18.4x.

McCormick’s (MKC) valuation multiple of 24.3x is higher than the peer group’s average of 17.8x. J. M. Smucker (SJM), ConAgra Foods (CAG), and General Mills (GIS) were trading at forward PE multiples of 15.4x, 20.4x, and 17.7x, respectively.

The 12-month forward PE ratio differs among peers based on several factors, including growth expectations, profitability, business model, capital structure, and risk-return profiles.

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Growth expectations

Despite the softness in the industry, McCormick (MKC) has managed to drive sales through acquisitions, new products, enhanced marketing, and expansion of its distribution channel. The company’s price restructuring initiatives could cushion its margins.

However, a continued slowdown in the US and adverse currency movement could pressure its margins. MKC’s management plans to spend more on brand promotions, which could impact its margins.

Analysts expect McCormick to post revenues of $4.6 billion in fiscal 2017, up about 3.5% on a YoY (year-over-year) basis. On the other hand, the company’s management projects its sales to improve 3%–5% for fiscal 2017, including the unfavorable impact of currency movements.

As for McCormick’s earnings per share (or EPS), analysts expect the company to report adjusted EPS of $4.08, up 7.8% YoY. Management forecasts its EPS in fiscal 2017 to reach $4.05–$4.13.

Please visit our Consumer Staples page for more updates on McCormick stock.

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