McCormick & Co Inc (MKC, Financial) has recently experienced a daily loss of -9.72%, with a 3-month loss of -13.95%. Despite this, the company maintains an Earnings Per Share (EPS) of 2.59. The question that begs an answer is: Is McCormick (MKC) significantly undervalued? This article aims to provide an in-depth valuation analysis of McCormick, so keep reading to find out more.
A Snapshot of McCormick & Co Inc (MKC, Financial)
With over 130 years of history, McCormick has established itself as the leading global manufacturer, marketer, and distributor of spices, herbs, extracts, seasonings, and other flavorings. The company serves a diverse customer base, including top quick-service restaurants, retail grocery chains, and other packaged food and beverage manufacturers. Nearly 40% of its sales are generated outside the United States, spanning 150 countries and territories. Its portfolio includes renowned brands such as Old Bay, Zatarain's, Thai Kitchen, Frank's RedHot, French's, and the Cholula brand.
McCormick's stock price currently stands at $67.46 per share, with a market cap of $18.20 billion. When compared with the company's GF Value of $97.4, there is a clear indication that the stock may be significantly undervalued.
Understanding the GF Value of McCormick (MKC, Financial)
The GF Value is a unique measure of a stock's intrinsic value, which is derived from historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides a visual representation of the stock's ideal fair trading value. When the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return will likely be higher.
Given the current price of McCormick's stock, it appears to be significantly undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
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Assessing McCormick's Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it's crucial to thoroughly review a company's financial strength before deciding to buy its stock. A good starting point is to look at the company's cash-to-debt ratio and interest coverage. McCormick has a cash-to-debt ratio of 0.03, which is worse than 91.03% of 1784 companies in the Consumer Packaged Goods industry. Despite this, GuruFocus ranks McCormick's overall financial strength at 5 out of 10, indicating fair financial strength.
Evaluating McCormick's Profitability and Growth
Investing in profitable companies, especially those that have consistently demonstrated profitability over the long term, generally poses less risk. McCormick has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $6.50 billion and Earnings Per Share (EPS) of $2.59. Its operating margin is 15.01%, which ranks better than 85.28% of 1827 companies in the Consumer Packaged Goods industry. Overall, GuruFocus ranks McCormick's profitability at 9 out of 10, indicating strong profitability.
However, growth is a critical factor in a company's valuation. McCormick's 3-year average annual revenue growth is 5.6%, which ranks worse than 53.33% of 1710 companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth rate is 0.3%, which ranks worse than 60.42% of 1516 companies in the same industry.
McCormick's ROIC vs WACC
Another way to assess a company's profitability is to compare its return on invested capital (ROIC) with the weighted 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. Ideally, the ROIC should be higher than the WACC. For the past 12 months, McCormick's ROIC is 6.3, and its cost of capital is 7.56.
In Conclusion
Overall, McCormick (MKC, Financial) stock appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 60.42% of 1516 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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