McCormick rises 15% in 3 weeks


Shares of McCormick & Co. Inc., which had been muddling along in the $21-$23 range since February, have risen nearly 15 percent in the last three weeks, pushed up by a combination of investors' fears of a slowing economy and hopes that the company is about to achieve its long-promised rebound.

Although the stock closed down 25 cents from Thursday's close yesterday, it finished the week at $25, up $3.125 from the start of its rise Sept. 19.

Investors said yesterday that some of the buying pressure is being driven by a Wall Street stampede out of more cyclical stocks, such as in big steelmakers and high technology companies.

"There is a sectoral rotation into consumer products" companies, such as spice maker McCormick, because they are viewed as safe havens during times of slow economic growth, said Peter McCarthy, portfolio manager of Valenzuela Capital Management in New York.

Mr. McCarthy, who started buying McCormick stock in the spring, when the shares were trading in the low $20s, said he and others are growing more bullish on McCormick because they believe the company has finally put its financial troubles behind and is set to start reporting improved profits again.

Mr. McCarthy said neither he nor any other investor has any hard evidence that McCormick will start reporting the double-digit profit growth it has promised starting in its fourth quarter.

But he said he is seeing signs that the competition that drove up prices for spice shelf space in grocery stores has eased.

On Sept. 19, McCormick reported lower-than-expected earnings for the summer quarter, earning $20 million on $432 million in sales, compared with profits of $26.4 million on sales of $422 million in the same period a year ago.

Shortly afterward, nearly half a dozen Wall Street analysts upgraded their recommendations on the stock, saying the worst was over. Nomi Ghez at Goldman Sachs, who raised her McCormick rating to "moderate outperformer" in late September, said one reason she believes the company will start reporting profit gains is its disappointing performance of the last year.

"Many things are behind them, and they'll have a much easier comparison," she said.

But Ms. Ghez said she believes, now that McCormick shares are trading at about 16 times its projected earnings -- the average for the food industry -- that the stock probably will stabilize while investors wait to see if the company can, indeed, come through with its promised gains.

Donald A. Palumbo, treasurer of the Sparks-based spice giant, said yesterday that McCormick is "on track" to meet its goal of "15 percent earnings growth, on average, over time."

Among the encouraging signs: McCormick salespeople have noticed "less intensity" in the competition for supermarket shelf space with the Australian owner of Durkee and Tone Bros.

In addition, he said, sales in Mexico, which have been a drag on the company's earnings for months, finally have returned to profitability.

While the company's stock price has finally bounced back to the average food industry price-to-earnings ratio, Mr. Palumbo said he believes the stock could go higher.

For many years, he noted, McCormick shares traded at a higher price-to-earnings ratio than its competitors.

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