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Why the Uptrend in McCormick Stock Might Be Limited

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Stock performance

McCormick (MKC) stock bounced back in the past two months. The stock has risen ~23% since February 1. McCormick stock has risen 8.6% on a YTD (year-to-date) basis as of April 3. The company’s better-than-expected bottom-line performance in the first quarter, improved volumes and pricing, and margin expansion supported the uptrend in the stock.

So far, other major food stocks have also recorded strong gains and have outperformed the benchmark index this year. General Mills (GIS), Conagra Brands (CAG), and J.M. Smucker (SJM) shares have risen 29.1%, 28.6%, and 23.4% on a YTD basis. The S&P 500 Index has risen 14.4% during the same period.

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Low growth and high valuation 

We expect McCormick to benefit from the sustained momentum in the base business. New product launches, expanded distribution, and brand investments are expected to support the top line. However, the sales growth is expected to stay low due to the tough YoY comparison, which is expected to restrict the upside in the stock.

McCormick’s bottom line is expected to benefit from its improved volumes and pricing. Cost savings are expected to support the company’s bottom-line growth. However, the growth rate will likely be in the mid-single-digit range. Higher taxes are expected to limit the EPS growth rate.

McCormick stock trades at a forward PE ratio of 28.8x, which doesn’t look attractive based on the projected mid-single-digit growth rate. Soft sales and EPS growth and high valuations could restrict more upside in McCormick stock.

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