McCormick Has Solid Quarter, but Shares Not a Bargain
Wide-moat
For fiscal 2017, management anticipates mid- to high-single-digit organic sales growth and adjusted earnings per share of $4.05-$4.13, a touch below our $4.23 expectation partly due to a slightly higher tax rate assumption. Even after incorporating a more modest near-term earnings outlook, we don’t foresee a material change to our $91 fair value estimate, outside of a $1-$3 increase to account for additional cash generated since our last update. Our long-term outlook, which calls for 4% sales growth--with just more than half of top-line growth each year resulting from higher volume and favorable mix and the remainder reflecting increased prices--and operating margins to approach 17.5% by the end of our 10-year explicit forecast (about 300 basis points above the average margin over the past five years), remains in place. However, with the shares trading at a premium to our valuation, we'd suggest investors await a more attractive entry point.
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