We are initiating coverage on McCormick & Co. Inc. (MKC) with a Neutral recommendation and a target price of $41.00.
McCormick, founded in 1889 and based in Sparks, Maryland, is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors for the food industry across the globe. The company’s key sales, distribution and production facilities are located in North America and Europe. Furthermore, the company has facilities in Mexico, Central America, Australia, China, Singapore, Thailand and South Africa.
McCormick conducts its business through two segments – Consumer and Industrial. The Consumer segment offers spices, herbs, extracts, seasoning blends, sauces, marinades, and specialty foods to the consumer food market. This segment primarily caters to retail outlets.
The Industrial segment sells seasoning blends, natural spices and herbs, wet flavors, coating systems and compound flavors to food manufacturers and the food service customers. The products are sold through distributors.
McCormick has a significant presence in the international market. The company’s consumer brands reach approximately 100 countries. The significant international presence has boosted its growth and we believe will continue to do so in the coming years.
McCormick has made multiple acquisitions that have contributed to growth. The company intends to add leading brands to its portfolio through acquisitions. Furthermore, the company seeks to extend its presence into new geographies. McCormick is on the lookout for similar profitable transactions. Furthermore, the broad range of products offered by the company coupled with its wide customer base should drive growth in the coming quarters.
We remain concerned about the intense competition facing McCormick. Competitors will always look to grab market share by offering lower prices, new and better services. Furthermore, the rise in price of raw materials such as dairy products, pepper, wheat, onion, capsicums, soybean oil and garlic has the potential to affect the company’s results adversely. Additionally, the growth-by-acquisition strategy followed by the company has inherent risks.
Consequently, we do not anticipate a significant upside in the near future and expect the stock to perform in line with the broader market.

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