Will McCormick Stock Go Up?

Shoppers continue to face difficulties. After two years of high inflation taking a toll on budgets, many are now looking for the best value deals and have to make careful choices about what they spend money on.

Amid these challenges, McCormick & Company, Incorporated (NYSE:MKC), which deals in seasonings, spices, and sauces, has seen a 16.4% increase in its share price over the past six months. The stock has also gained about 10% over the past three months and is up 3.3% over the past month, but will the bullish momentum continue?

What’s Driving McCormick Share Price?

McCormick has shown resiliency in handling the macro environment, including rising wholesale costs and price-sensitive consumers.

In spite of the hurdles, the business is in a strong place as a result of cost savings initiatives that have helped to increase profit margins from operations. 

A combination of brand advertising, new product creation, package design innovations, and strengthening customer relationships have all supported growth.

McCormick has also innovated technologically, such as through a recent partnership with Cognizant Technology Solutions Corporation (CTSH).

Under this agreement, Cognizant will update and manage McCormick’s technology systems all over the world and will provide leading-edge tech services that are designed to improve the work experience for approximately 13,000 McCormick employees at more than 80 locations globally. 

On the product side, the release of the company’s U.S. Everyday Herbs & Spices collection is going according to plan and should be entirely transitioned by the end of the fiscal 2024 second quarter. The range of Schwartz seasonings and recipe mixes are also becoming more popular in homes, especially among younger buyers.

At the same time, the company is starting to sell new Lawry’s seasoning mixes in bigger packets at reasonable prices. These fresh products and choices match consumers’ preferences and should support further growth.

What Do the Financials Reveal?

McCormick’s sales increased by 3% in the FY 2024 Q1 versus the year prior quarter.

Better still, gross profit margin grew by 140 basis points from the previous year’s first quarter. Broader product variety and cost cutting measures contributed to the margin expansion.

Adjusted operating income for the quarter reached $238 million, which is higher than last year’s figure of $227 million at that same time. Earnings per share, after adjustments, were $0.63 in the first quarter of 2024, up from $0.59 at the same time last year.

Cash flow from operations in the first part of 2024 reached $138 million, a significant increase from the $103 million reported in 2023. This growth mainly comes from higher profits from the combination of McCormick’s business activities.

The business succeeded not only in achieving success in the first financial quarter but also in the prior one too. Sales went up by 3% in FY 2023 Q4 compared to the same time last year, and gross profit margin rose by 320 basis points compared with the previous year’s Q4.

Operating income after adjustments was $311 million, a healthy increase from the $278 million during the same quarter last year. Also, in Q4 2023, adjusted profit per share of $0.85 fared well compared to the $0.73 per share reported in the same period last year.

The progress made by the company in the first quarter explains reveals significant customer loyalty as repeat business continues to be a hidden asset the company enjoys.

McCormick plans to keep growing by further investing in advertising for the Cholula and Frank’s RedHot brands, using marketing for Frank’s throughout the year, and launching new products that match customer demands.

How Does the Dividend Growth Look?

McCormick’s goods are in steady demand, leading to stable financials that attracts institutional investors. Dividend investors are also going to find the stock appealing for similar reasons.

The Board of Directors declared most recent a quarterly dividend of $0.42 on March 27, achieving a remarkable record of distributing dividends for 100 consecutive years.

Moreover, it has increased its dividend annually for the past 37 years. The dividend appears in no jeopardy given the payout ratio is 58.24%.

McCormick’s forward annual dividend of $1.68 per share translates to a yield of about 2.29%.

Over the last five years, dividend payments have increased by 8.3% on a compounded annual basis.

Is McCormick’s Profitable?

The company’s recent profitability metrics highlight how well McCormick is doing and how strong its positioning is in the market. It has a trailing-12-month gross profit margin of 37.9%, which is 9.7% more than what is typical in its sector, showing that the company handles its production costs well to make sure it earns money on every item sold.

Its trailing-12-month EBITDA margin sits at 18.27%, which is much higher than the industry average by a margin of 55%.

McCormick’s trailing-12-month net income margin is 10.6%, and levered free cash flow margin stands at 12.58%, considerably higher than the average values in their sector by 104.1% and 155.6%.

Additionally, it can earn strong profits and cash streams, which builds a stable foundation for continuous expansion and creates shareholder value.

How Do McCormick’s Prospects Look?

With the strength of its brand names and well-chosen investments, management believes it will see better sales numbers as this year goes on. They are aiming to increase sales unless new economic challenges derail progress.

Management predicts that 2024 operating income will rise by 8% to 10%, up from $963 million in 2023. Meanwhile, the company forecasted an adjusted operating income growth between 3% and 5%.

McCormick estimates that in 2024, adjusted earnings per share will be between $2.80 and $2.85, which is higher than the $2.70 adjusted earnings per share reported in 2023.

In the fiscal year 2024, the company predicts a solid cash flow because of profit improvements and better-working capital management. It also plans to give back much of this cash flow to the shareholders through dividends.

For the financial year ending in November 2024, analysts on Wall Street predict a slight increase in the company’s revenue compared to last year, reaching $6.68 billion.

For the same time frame, they believe that earnings per share will increase by 6.1% from the previous year to $2.87. The management team has reported higher than expected earnings per share in three out of the last four quarters, which is very impressive.

Will McCormick Stock Go Up?

McCormick is unlikely to rise much further in the eyes of analysts who have placed fair value at $75.47 per share, just 4.5% higher than where the share price currently sits.

One reason for the pessimism is the lofty multiples. For example, the forward non-GAAP P/E ratio is 26.10x, almost 50% more than the average of industry rivals.

The forward EV/Sales is 3.63x, which is 120% higher compared to the average in this industry. Also, the forward EV/EBITDA stands at 19.15x, 84% higher when you compare it with the average value of 10.4x for the industry.

In terms of recommendations, 10 of the 14 analysts are of the opinion that the stock is better to be watched now than to be bought. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.