McCormick & Company, Incorporated (NYSE:MKC) shares fell 4.2% to US$166 in the week since its latest yearly results. McCormick reported in line with analyst predictions, delivering revenues of US$5.3b and statutory earnings per share of US$5.24, suggesting the business is executing well and in line with its plan. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. So we gathered the latest post-earnings forecasts to see what analysts’ statutory forecasts suggest is in store for next year.
Taking into account the latest results, the most recent consensus for McCormick from ten analysts is for revenues of US$5.51b in 2020, which is a credible 3.0% increase on its sales over the past 12 months. Statutory per share are forecast to be US$5.31, approximately in line with the last 12 months. In the lead-up to this report, analysts had been modelling revenues of US$5.54b and earnings per share (EPS) of US$5.50 in 2020. Analysts seem to have become a little more negative on the business after the latest results, given the small dip in their earnings per share forecasts for next year.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$154, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on McCormick, with the most bullish analyst valuing it at US$185 and the most bearish at US$109 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await McCormick shareholders.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that McCormick’s revenue growth is expected to slow, with forecast 3.0% increase next year well below the historical 6.2%p.a. growth over the last five years. Compare this to the other companies in this market with analyst coverage, which are forecast to grow their revenue at 2.9% per year. So it’s pretty clear that, while McCormick’s revenue growth is expected to slow, it’s expected to grow roughly in line with the industry.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for McCormick. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn’t be too quick to come to a conclusion on McCormick. Long-term earnings power is much more important than next year’s profits. We have estimates – from multiple McCormick analysts – going out to 2023, and you can see them free on our platform here.
You can also see whether McCormick is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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