McCormick & Co Inc (MKC, Financial) recently experienced a daily loss of -1.64%, yet it has achieved a 3-month gain of 11.77%. With an Earnings Per Share (EPS) of 2.62, investors may wonder if the stock is modestly undervalued. This article delves into a valuation analysis of McCormick, aiming to provide a clear answer to this question and encourage readers to explore the following in-depth financial assessment.
Company Introduction
McCormick & Co Inc, with over 130 years of history, has emerged as a leading global manufacturer and distributor of spices, herbs, and flavorings. Catering to a diverse customer base that includes quick-service restaurants, retail grocery chains, and packaged food manufacturers, McCormick boasts a global presence with 40% of its sales generated internationally. The company's portfolio features renowned brands such as Old Bay, Zatarain's, Thai Kitchen, Frank's RedHot, French's, and Cholula. With a current stock price of $76.03 and a market cap of $20.40 billion, an examination of McCormick's intrinsic value compared to its GF Value of $91.89 is crucial for investors seeking to understand its true market potential.
Summarize GF Value
The GF Value is a proprietary metric that calculates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When a stock price significantly deviates from the GF Value Line, it may indicate overvaluation or undervaluation, influencing its future return potential. McCormick (MKC, Financial) currently seems modestly undervalued, suggesting a higher long-term return than its business growth might indicate.
Financial Strength
Investing in companies with robust financial strength is essential to avoid capital loss. McCormick's cash-to-debt ratio of 0.04 ranks lower than 89.94% of its peers in the Consumer Packaged Goods industry. This ranking leads to a financial strength rating of 5 out of 10, indicating a fair balance sheet.
Profitability and Growth
Profitability is a key indicator of a company's performance and potential. McCormick has maintained profitability for the past 10 years. With annual revenues of $6.70 billion and an operating margin surpassing 85% of its industry competitors, McCormick's profitability is considered strong. When it comes to growth, however, the company's 3-year average annual revenue growth rate is 5.9%, placing it in the lower half of its industry. Similarly, its EBITDA growth rate of 0.6% also ranks below the industry median.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) provides insight into its financial efficiency. Ideally, the ROIC should exceed the WACC. McCormick's ROIC is currently 6.6, which is below its WACC of 7.78, indicating a potential area for improvement.
Conclusion
In summary, McCormick (MKC, Financial) seems to be modestly undervalued. The company's financial condition is fair, and its profitability is strong, but its growth could be more robust. For those interested in a deeper analysis, McCormick's 30-Year Financials can provide additional insights.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
