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Why Analysts Expect a Pullback in McCormick Stock

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Oct. 5 2018, Updated 10:07 a.m. ET

Consensus target price indicates a pullback

Analysts have a consensus target price of $123.85 per share on McCormick (MKC) stock. This indicates a 7.6% downside based on its October 3 closing price of $134.02.

Most of the analysts covering the company maintain a “neutral” rating on MKC stock. Among the 13 analysts covering MKC stock, nine analysts suggest a “hold,” two analysts maintain a “buy” rating, and two analysts have a “sell” recommendation.

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Valuation is a concern

McCormick (MKC) stock has increased 31.5% on a year-to-date basis as of October 3, and analysts believe that the positives are priced in. McCormick stock gained from the company’s stellar sales and earnings growth rate in the first three quarters of fiscal 2018. The company’s fiscal year runs from December to November.

Incremental sales from McCormick’s RB Foods acquisition, continued strength in its base business, and a lower effective tax rate supported its double-digit sales and earnings growth rate. Analysts expect the company to report healthy sales and earnings growth in the near term. However, the current valuation could restrict its upside or can result in a pullback.

McCormick stock trades at 24.9x its fiscal 2019 estimated EPS of $5.38, which looks expensive based on the projected growth rate of 7.8% in that period. The company’s high debt position is expected to result in higher interest costs and its EPS growth rate.

Analysts expect McCormick’s growth rate to decelerate in fiscal 2019. The company plans to annualize its RB Foods acquisition, and it’s facing tough year-over-year comparisons.

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