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McCormick: Why Are Analysts Staying on the Sidelines?

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Jun. 20 2019, Published 12:27 p.m. ET

McCormick’s valuation

McCormick’s (MKC) underlying sales and adjusted earnings have been impressive in the past several quarters. The company’s base business is expected to sustain the momentum in the coming quarters. However, McCormick’s high valuation and the expected moderation in its sales and earnings growth rate indicate a pullback in its stock.

McCormick stock trades at 29.6x its fiscal 2019 estimated EPS of $5.26 and at 27.5x its fiscal 2020 estimated EPS of $5.66. Both of the figures look expensive based on a projected growth rate of 5.8% and 7.6% during those periods.

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Historically, McCormick’s top line has benefited from its strategic acquisitions. In the absence of incremental sales from acquisitions, the company’s top-line growth is expected to stay low. The adjusted earnings are expected to take a hit from the higher adjusted effective tax rate. We expect McCormick’s base business to continue to grow. However, the growth rate probably won’t be impressive.

Analysts’ rating and target price

Among the ten analysts covering McCormick, nine recommended a “hold,” while one recommended a “buy.” Analysts have a target price of $145.89 per share on McCormick, which implies a 6.3% downside base on its closing price of $155.75 on June 19.

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