As earnings loom, McCormick tied to M&A as acquirer, target

Mon Mar 28, 2016 2:10pm EDT
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By Rodrigo Campos

NEW YORK (Reuters) - There is nothing bland about betting on McCormick.

The Maryland spice maker is preparing to report slowing first quarter earnings with its share price as high and expensive as it has ever been. Yet investors expect the company to hold its own on Wall Street, partly because of acquisitions.

McCormick is due on Tuesday to report earnings for the quarter ended in February and analysts expect a gain of 69 cents per share compared to 70 cents a year earlier.

The stock is up 12.6 percent so far this year, compared to a flat S&P 500 .SPX and a gain of 2.2 percent in the S&P 1500 food products index .SPCOMFDPR.

McCormick stock trades at about 25 times its expected earnings, compared to a price-to-earnings ratio of close to 20 among its food producer peers, according to Reuters data.

That is its highest valuation ever but is well deserved, said Mark Hughes of Lafayette Investments in Ashton, Maryland, which has slightly more than 2 percent of its portfolio in McCormick.

Hughes said the high price does not concern him and sees potential for the company to continue to grow, especially through acquisitions.

"They’re in a very steady business that’s growing nicely but acquisitions have always been a key component of their growth strategy," he said.   Continued...

A can of Old Bay Seasoning, one of the premier brands of spices manufactured by McCormick & Co. is seen in this illustration taken in Adelphi, Maryland March 18, 2016. REUTERS/Jim Bourg