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McCormick Stock: Ratings and Valuation

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Rating summary

Most of the analysts maintained a neutral view on McCormick (MKC) stock due to the company’s high valuation. However, J.P. Morgan raised its target price on McCormick stock following the company’s fiscal second-quarter results. J.P. Morgan has a target price of $148 per share on McCormick—up from $143.

Among the ten analysts covering McCormick stock, nine recommended a “hold,” while one recommended a “buy.” Analysts’ target price of $147.56 per share implies a downside of 5.3% based on its closing price of $155.87 on June 27.

Expensive valuation

We’re impressed with the continued strength in McCormick’s base business and its ability to restructure pricing to offset the negative impact of cost headwinds. However, McCormick’s current valuation looks expensive and could limit the upside in the stock.

Currently, McCormick stock is trading at 29.6x its fiscal 2019 estimated EPS of $5.27 and at 27.5x its fiscal 2020 estimated EPS of $5.67. Both of the levels look expensive based on the company’s projected EPS growth of 6% and 8%, respectively, in fiscal 2019 and 2020.

McCormick’s organic sales will likely benefit from higher volumes and increased pricing. However, negative currency rates and tough comparisons are expected to limit the growth. The company’s earnings growth rate will likely to moderate sequentially, which reflects the higher effective tax rate.

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