McCormick (MKC) recently piqued my interest. I read a Motley Fool article about McCormick’s bland outlook by W.D. Crotty. Usually an article with the word bland doesn’t grab my attention but I found it hard to belive that the spice company, McCormick, could be bland.
Crotty believes that McCormick is a bland commodity company. He writes:
This past March, I noted that McCormick’s was a commodity company, exposed to crop risks and other macroeconomic factors.
I have a hard time believing that a company that generates a Return on Equity (ROE) of over 25 percent and a Return on Assets (ROA) of about 10 percent can truly be a commodity company. In fact, I believe that McCormick might have a sizable moat in its consumer spice products. Heck, they may even be a toll booth on the road to cooking spicy meals.
To test out my hypothesis, I went to my pantry. Out of the 29 spices I have, only 2 (Morton’s salt and some spice mixture that I got for free once) were not made by McCormick, and I’m by no means a great cook. That means for most of the meals that I prepare from scratch, I end up paying a little bit of money in spices each time to McCormick.
I am by no means particular about my spices, so I couldn’t understand how I ended up with so many McCormick products. So this week when I went shopping, I took notice of the spices sold at my grocery store. After searching high and low, I couldn’t believe that just about all the spices were made by McCormick even though many of the jars looked different.
I’m not sure if my findings are very representative. I’d like you to look through your own spice racks at home and inspect your grocery store spices. What proportion are made by McCormick?
With McCormick recently reaching a 52 week low, there might be an opportunity here.
One thought on “McCormick Check”
Morningstar says McCormick is the largest spice maker in the world, has a 40% market share, and are eight times larger than any of their competitors. They say it is worth $33 a share and assume a 7% revenue growth rate.
Also, I think the stock may have dropped a bit on analyst earnings concensus; this year drpped from $1.67 to $1.60, and next year dropped too.