Current rating and target price
Currently, most of the analysts covering McCormick (MKC) stock maintain a “neutral” outlook due to increased competition from private label players and the company’s high valuation. As of July 18, 2017, analysts kept a score of 2.9 on McCormick stock on a scale of one (or “strong buy”) to five (or “strong sell”). Of the 14 analysts who rated McCormick stock, 14.0% recommended a “buy,” 79.0% recommended a “hold,” and 7.0% maintained a “sell” rating. The company is trading 2.5% below analysts’ 12-month target price of $99.54.
Analysts maintain a “neutral” outlook on most of the company’s peers. The industry-wide slowdown is projected to impact food manufacturers’ performance in the near term. Of the 20 analysts covering General Mills (GIS) stock, 10.0% maintained a “buy,” 65.0% recommended a “hold,” and 25.0% recommended a “sell.” For J.M. Smucker (SJM) stock, 32.0% of the 19 analysts recommended a “buy,” 52.0% recommended a “hold” and 16.0% maintained a “sell” rating.
McCormick’s current 12-month forward PE (price-to-earnings) ratio of 23.1x remains well above its peer group average and the broader index. The S&P 500 (SPX) and the Consumer Staples Select Sector SPDR ETF (XLP) were trading at forward PE multiples of 18.1x and 21.1x, respectively, on July 18, 2017.
Besides, the company’s current PE multiple is higher than the peer group average of 17.8x. On the same day, J. M. Smucker, Conagra Brands (CAG), and General Mills (GIS) were trading at forward PE multiples of 14.7x, 17.9x, and 17.3x, respectively.
McCormick’s high valuation
It’s important to note that the 12-month forward PE multiple differs among companies based on a number of factors including capital structure, growth expectations, profits, and business model. McCormick stock deserves a premium because the company generates industry-leading sales growth despite challenges.
In the meantime, the company’s peers are struggling. McCormick is guiding for a strong 2H17 outlook due to its innovative product pipeline, expanded distribution, and efficient marketing. The company’s strategic acquisitions are expected to generate incremental sales and boost its financials.