McCormick & Company (NYSE:MKC) shares are trading near its six-month high, driven by an encouraging earnings announcement and confirmation of management’s 2024 outlook. The company surpassed expectations, with an earnings per share (EPS) of 63 cents and revenue of $1.60 billion, against forecasts of an EPS of 58 cents and $1.55 billion in revenue.
Additionally, McCormick reiterated its guidance for the year in a move that is mostly consistent with retailers who are projecting slightly softer revenue. Nonetheless, the company forecasts an adjusted EPS in the range of $2.80 to $2.85, implying at least 3% growth from the previous year.
The Consumer is Still Under Pressure
McCormick president and chief executive officer Brendan Foley noted during the company’s earnings call that “consumers remain challenged” by inflation and continue to seek value. However, during the first quarter, the company did see a shift to food-at-home consumption.
This reflects the “heads you win, tails you still win” proposition of owning MKC stock. Whether you eat at home or eat out, food needs seasoning to taste good so McCormick wins in either scenario. The company did notice a slight decrease in demand from restaurants this quarter, which translates to more home cooking by consumers.
Over the last ten years, McCormick has improved and expanded its product range to include popular brands such as Frank’s RedHot, French’s mustard, Cholula hot sauce, and Stubb’s barbecue sauce, further positioning itself deeper into kitchens everywhere.
MKC is Expensive, But Remains a Value
Before its recent earnings announcement, McCormick’s stock was valued at 22 times earnings and 20 times its expected forward earnings. Yardeni Research found that the median forward price-to-earnings (P/E) ratio for stocks within the consumer staples sector stands at 19.4.
Following a 10% surge in McCormick’s stock price post-earnings, its valuation ratios have risen to 30.6 times its current earnings and 27.4 times its forward earnings. This elevation places McCormick in the pricier valuation category. However, considering the anticipated growth in the company’s earnings and cash flow, this high valuation might actually undervalue the company’s outlook given its ability to sell to professional chefs, at-home weekend chefs, and plain consumers with no real interest in cooking other than pouring spices of sauces in food to taste better.
Getting Involved with MKC Stock
After a bullish earnings report, McCormick’s stock price gained 10% and reached its highest point since September 2023. Given the typical volatility of stocks around earnings announcements, it might be best to wait for the stock price to stabilize before buying shares.
McCormick’s stock is currently trading at the midpoint of its 52-week price range, suggesting potential for further gains, especially if analysts start to revise their price targets upward. Over the past six months, analysts have been reducing their price targets for McCormick. Yet, the company’s strong earnings could lead to a reassessment of how the Street views thes tock, as evidenced by institutional buying that has supported the stock price.
Indeed, the company’s strong earnings announcement should force analysts to reconsider their price targets for McCormick upwards, despite it currently holding a consensus rating of Hold from 19 analysts. Additionally, in November, the McCormick board announced an 8% dividend increase, marking the 37th consecutive year of dividend growth—a significant draw for investors seeking steady income.
Ultimately, McCormick remains a compelling stock to own as at its core it is a reliable consumer staples company that offers a growing dividend and potential for appreciable gains in a favorable economic climate