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McCormick Stock Is Seasoned Just Right For Value Investors

Tuesday, March 30, 2021 | Chris Markoch
McCormick Stock Is Seasoned Just Right For Value Investors

Like many stocks, McCormick's (NYSE: MKC) stock is moving higher prior to earnings. In the last month, the stock price has climbed over 7% reversing a bearish trend since the beginning of the year. In fact, as of this writing McCormick remains down about 3% for the year.

 In this case, value investors are likely to be rewarded. The company is expected to post earnings of 57 cents per share on revenue of $1.37 billion. The whisper number puts McCormick’s earnings even higher at 59 cents per share. Either number would be an increase from the same quarter in the prior year.

It would also keep the company on pace to hit its target earnings forecast of $2.91 to $2.96 for the year. I believe that’s true because historically the first quarter has been the company’s weakest quarter in terms of both revenue and earnings.

But growth investors may find the company’s fortunes a little bland. The question will be where the company’s growth will come from. I can point to anecdotal spice shortages in my grocery store. While it’s true that many Americans have been cooking more at home, I suspect much of this shortage is due to supply chain difficulties more than truly increased demand. It’s also difficult to forecast how much this trend of cooking at home will remain in place as the economy reopens.

On the other hand, McCormick stands to benefit as the economy continues to reopen. It does service the food service business as well as the bar and restaurant sectors. Even a more tepid opening than expected would benefit the company.

Time For Acquistions to Pay Off

If investors are going to get nervous about investing in McCormick, they need to look no further than the company’s recent spending spree. McCormick made two significant acquisitions in 2020, both of which added debt to its balance sheet. In its last earnings report, the company posted total liabilities of $8.1 billion with current liabilities of $3 billion.

In addition, McCormick had $1.15 billion in debt due within the next year. When investors compare that to the company’s cash on hand and free cash flow, it’s fair to wonder if the company will have to borrow more. However, management said it was planning on paying down the debt with the cash flow it generates. Clearly, the company believes it will get a boost as the economy reopens.

Investors will be listening to hear if management maintains a similar optimism as it reports earnings.

MKC Remains a Strong Value Stock

Growth-oriented investors may not find McCormick to be that spicy of an investment. However, for value investors, it’s a different story. To begin with, the company raised its dividend significantly last quarter. That made it 35 consecutive years of dividend growth for the Dividend Aristocrat.

The 37 cent per share increase brought the quarterly dividend up to 89 cents per share. This supports what McCormick said in December when it made clear that recent acquisition would not impact their dividend policy.

If the company announces a dividend in the next few days, you should expect the MKC stock price to climb in advance of the ex-dividend date.

What to Expect From McCormick Post Earnings

When I last wrote about McCormick, the company’s stock was trading almost 10% above the level it is as I write this article. At that time, it appeared investors had jumped the gun on the recovery. In fact, in many states, the economic gains went in reverse.

This time around, there seems to be a more sustainable recovery narrative. Vaccines continue to roll out and the pent-up demand that was anticipated is starting to show up.

If you’re a growth investor, I’m not sure this is the stock for you. However value investing is making a comeback, and I like MKC stock for a reliable dividend. Plus, even if you believe the stock is fairly valued, you may be able to capture some stock price growth that approximates the growth of the company’s business which has been around 4% to 5% over the last three years.

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7 Stocks to Buy For the Gig Economy

Before the global pandemic, it was referred to as a side hustle—a way for some individuals to make a little extra money. However, as the pandemic has changed the nature of how we work, and as consumers how we spend, the gig economy has become an essential way of life for many workers.

There is much that’s not known about the long-term effects of the pandemic. But if there’s one lesson we learn from history, it’s that there will be ripple effects. We believe that society will get back to something resembling normal. However, what that normal looks like may be different.

Americans were becoming less social since before the pandemic. Now consumers have begun to realize there truly is no reason to leave their house to shop for anything. And while many crave physical connection during these times, there will be many that have changed their purchasing habits for good.

Other elements of the gig economy, such as ride-hailing and home rentals, were devastated due to the pandemic. Those businesses are likely to come back.

And that’s why companies that have created the gig economy aren’t going away anytime soon. In this special report, we’ll highlight several stocks that investors should consider as the gig economy moves forward.

View the "7 Stocks to Buy For the Gig Economy".


Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
McCormick & Company, Incorporated (MKC)1.8$89.84-0.5%1.51%31.75Hold$92.40
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