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How Analysts Reacted to McCormick’s Fiscal Q3 2018 Results

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Ratings and target price

Several analysts increased their price targets on McCormick (MKC) stock following the company’s fiscal third-quarter[1. fiscal Q3 2018 ended August 31] earnings release on September 27. J.P. Morgan increased its target price on MKC stock to $121.00 per share from $112.00. Credit Suisse raised its target price to $137.00 per share from $124.00.

Analysts have a consensus target price of $120.50 per share on MKC stock, which indicates a downside of 6.1% based on its September 27 closing price of $128.29. The majority of analysts covering McCormick stock maintain a neutral outlook. Of the 13 analysts tracking McCormick (MKC), nine suggested a “hold,” two recommended a “buy,” and two analysts suggested a “sell” rating.

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McCormick’s valuations

Analysts expect McCormick (MCK) to report strong sales and earnings growth in fiscal 2018. Incremental sales from acquired brands, continued momentum in the base business, new products, and expanded distribution are the primary factors expected to drive the company’s top line. A mix shift toward high-margin products, increased pricing, cost savings, and a lower effective tax rate are the major factors expected to cushion its earnings despite cost headwinds and increased interest expenses.

However, McCormick’s high valuations have been a concern. McCormick stock was up 25.9% year-to-date on September 27, which indicates that most of the positives are already priced in. McCormick trades at 25.7x its fiscal 2018 estimated EPS of $4.99 and 23.9x its fiscal 2019 estimated EPS of $5.36. Both valuations seem expensive in relation to the projected growth rates of 17.1% and 7.4%, respectively, in those periods.

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