McCormick & Co Inc (MKC, Financial) has recently seen a daily gain of 2.15%, complemented by a 3-month gain of 12.65%. With an Earnings Per Share (EPS) of 2.62, investors are keen to understand whether the stock is modestly undervalued. This article delves into the valuation analysis of McCormick (MKC), providing insights into whether the current market price reflects the company's intrinsic value.
Company Introduction
McCormick & Co Inc, with a history spanning over 130 years, has established itself as a global leader in the flavor industry. The company's diverse range of products, including spices, herbs, and seasonings, caters to a wide customer base from quick-service restaurants to retail grocery chains. With a significant portion of its sales coming from international markets, McCormick's brand portfolio boasts well-known names such as Old Bay, Zatarain's, and French's. At the current price of $78.27 per share and a market cap of $21 billion, a comparison with the GF Value—an estimate of fair value—will offer a clearer picture of the company's valuation.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, taking into account historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides a benchmark for what the stock should ideally trade at. When the stock price is significantly above this line, it may be overvalued, and conversely, if it is below, it could be undervalued. McCormick (MKC, Financial)'s stock, with its current price of $78.27, is considered modestly undervalued by GuruFocus, suggesting that its long-term return might surpass its business growth.
Financial Strength
Investing in companies with robust financial strength is crucial to minimize the risk of capital loss. Two key indicators of financial health are the cash-to-debt ratio and interest coverage. McCormick's cash-to-debt ratio stands at 0.04, placing it lower than 89.88% of its peers in the Consumer Packaged Goods industry. The company's financial strength is rated 5 out of 10 by GuruFocus, which suggests that McCormick's financial situation is fair.
Profitability and Growth
Consistent profitability is a hallmark of a less risky investment. McCormick has maintained profitability for the past decade, boasting a revenue of $6.70 billion and an operating margin of 15.37%, which is commendable within its industry. The company's profitability ranks a strong 9 out of 10. However, when it comes to growth, McCormick's 3-year average revenue and EBITDA growth rates are lower than many of its industry counterparts.
ROIC vs. WACC
Assessing a company's value creation can also be done by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). A higher ROIC compared to WACC indicates effective cash flow generation in relation to invested capital. McCormick's ROIC over the past 12 months is 6.62, which is slightly below its WACC of 7.88, suggesting that the company is not creating value for shareholders as effectively as possible.
Conclusion
In conclusion, McCormick (MKC, Financial) appears to be modestly undervalued according to GuruFocus' valuation metrics. The company shows strong profitability but its growth rates and value creation metrics suggest there is room for improvement. For a more detailed look into McCormick's financials, investors can explore the 30-Year Financials here.
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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.
