Greg
Public Equities Commentary
McCormick's deal to roughly double its share count to buy Europe's slowest-growing food consumer packaged goods business looks like a poor move made after its compounder multiple had already disappeared. Volumes held up until 2022 before some mix of price elasticity and GLP-1 drugs hurt them, and management incentives tied to three-year cumulative net sales growth help explain chasing size. x.com x.com x.comÂ
McCormick's Unilever deal, as structured, is no reason to buy the dip after the stock was hit on the news. x.comÂ
For a roughly 4% safe yield with accepted subpar price appreciation, Paychex is preferred over McCormick. McCormick dominates sourcing and private-labeling spices and pays a 3.7% dividend with 40 straight annual increases, but it is unlikely to beat the S&P 500 over 10-15 years with dividends taxed, and owning it could be regretted in a decade. It could still be a good trade over months to a couple of years. @LatticeInvestor adds that growth is sluggish and store brands threaten it. x.com x.comÂ
McCormick looks cheap against its earnings, at 8x trailing and 15x next year's versus the 18x packaged-food makers usually get. At 18x next year's $3.30 a share, give or take 12%, fair value is $52.21-$66.44 versus $48.20. The case leans on the forecast, with forward earnings 45% above trailing. A pullback zone sits at $36.25 and the stock would be expensive above $82.40. This is a levels-only read off reported earnings and revenue estimates, with no fundamental work. x.comÂ
Costco is worth adding even at an expensive valuation, while McCormick, though cheap, looks less attractive because of the Unilever food acquisition it is pursuing. x.comÂ
Eli Lilly's GLP-1 and metabolic franchise can compound demand and cash flows while rate fears punish leveraged AI stories. It is preferable as a defensive-growth holding into its October 29 earnings over chasing a chip bounce. Continued healthcare volume leadership would support the sleeve; if semiconductors reclaim leadership first, the rotation is already crowded the other way. x.com x.comÂ
McDonald's faces GLP-1 drugs, runaway inflation, shifting Gen Z preferences and terrible management execution, leaving it in its worst drawdown in 20 years outside of COVID. x.comÂ
Campbell's is turning from Big Food into Small Food because pricing can no longer offset cost inflation. Every line item that matters got worse: 630 basis points of cost inflation headwinds met only 110 basis points of price, which once again hurt volume by 60 basis points. The stock is at a 23-year low and the company has halted buybacks. x.com x.comÂ
Conagra Brands looks set to break out as new CEO Brase attacks its $7.1 billion debt and puts his own money in. He cut the dividend 50% on July 15 and the stock barely blinked, and he has now filed a 35,000-share purchase, about $510,000. Addition to the S&P SmallCap 600 on June 30 brings fresh demand, and high-protein GLP-1 products launch this summer. A weekly falling wedge is breaking out on heavy volume; $19.66 is the level to watch, 30%+ upside if it holds. x.com x.comÂ
General Mills will struggle to raise prices or grow as GLP-1 drugs and inflation push shoppers toward store brands and away from cereals. It has two years of negative EPS growth and estimates, and its operating cash flow and margins should suffer in that environment. The company does produce cash and is cheap, as @calvinfroedge notes with $2-3B of annual operating cash flow and a shareholder yield above 10%. x.com x.comÂ
Novo Nordisk is priced as if its story were permanently broken, and it is not. GLP-1 competition, pricing pressure and weaker guidance are fair concerns, but it remains one of the most important healthcare companies in the world, in one of the biggest markets on earth. Along with ServiceNow, it is one of the two names most liked at current levels, and its drawdown looks interesting. x.comÂ
