McCormick & Co Inc (MKC, Financial), a leading global manufacturer and marketer of spices, herbs, and other flavorings, has experienced a daily loss of -1.18% and a 3-month loss of -19.11%. The company's Earnings Per Share (EPS) stands at 2.59. With these figures in mind, the question arises: Is McCormick (MKC) modestly undervalued? This article aims to answer this question by conducting a comprehensive valuation analysis of McCormick. We invite our readers to delve into this insightful exploration of the company's value.
A Snapshot of McCormick & Co Inc (MKC, Financial)
With a history spanning over 130 years, McCormick has established itself as the global leader in the manufacture, marketing, and distribution of spices, herbs, extracts, seasonings, and other flavorings. The company's customer base extends beyond end consumers to include top quick-service restaurants, retail grocery chains, and other packaged food and beverage manufacturers. McCormick's reach is truly global, with nearly 40% of sales generated beyond its home turf, spanning 150 other countries and territories.
The company's portfolio includes renowned brands such as Old Bay, Zatarain's, Thai Kitchen, Frank's RedHot, French's, and the Cholula brand. With a market cap of $20 billion, McCormick's sales amount to $6.50 billion. The stock price currently stands at $74.59, which, when compared to the GF Value of $97.28, indicates that McCormick may be modestly undervalued.
Deciphering the GF Value of McCormick
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on three factors: historical multiples at which the stock has traded, a GuruFocus adjustment factor based on the company's past performance and growth, and future estimates of the business performance. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
According to our valuation method, McCormick (MKC, Financial) appears to be modestly undervalued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued, leading to poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued, leading to higher future returns. At its current price of $74.59 per share, McCormick's stock appears to be modestly undervalued.
Given that McCormick is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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An Examination of McCormick's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to carefully review a company's financial strength before deciding to buy shares. McCormick has a cash-to-debt ratio of 0.03, which ranks worse than 90.92% of 1796 companies in the Consumer Packaged Goods industry. Based on this, GuruFocus ranks McCormick's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth of McCormick
Investing in profitable companies carries less risk, especially in companies that have consistently demonstrated profitability over the long term. McCormick has been profitable for 10 years over the past 10 years. In the past 12 months, the company had revenues of $6.50 billion and Earnings Per Share (EPS) of $2.59. Its operating margin of 15.01% is better than 85.06% of 1841 companies in the Consumer Packaged Goods industry. Overall, GuruFocus ranks McCormick's profitability as strong.
One of the most important factors in the valuation of a company is growth. The average annual revenue growth of McCormick is 5.6%, which ranks worse than 53.21% of 1716 companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth is 0.3%, which ranks worse than 60.5% of 1524 companies in the Consumer Packaged Goods industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, McCormick's ROIC was 6.3 while its WACC came in at 7.44.
Conclusion
In conclusion, the stock of McCormick (MKC, Financial) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 60.5% of 1524 companies in the Consumer Packaged Goods industry. To learn more about McCormick stock, you can check out its 30-Year Financials here.
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