GrowthTurtle
Data Science PhD & IEEE Fellow, Ex-Two Sigma
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
PepsiCo's forecast for another year of just 3% growth leaves it nowhere close to cheap. It trades at 16 times 2027 earnings. x.comÂ
J.M. Smucker is worth $150 a share, based on normalized next-twelve-month EPS of $10 and the 15x multiple it usually trades at. x.comÂ
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
Cava looks like a decent short because rising input costs are about to hit just as consumers get squeezed. Higher energy, urea and fertilizer prices will almost certainly raise food costs, while the stock trades at 114x forward earnings for about 25% expected EPS growth over five years. Much of the recent rally looks like a short squeeze that is likely nearly or already done. x.com x.comÂ
Consumer staples are a lose-lose here because they are already overvalued at 26x forward earnings versus a 22.7x five-year average, the highest since just before the tech bubble burst. With stocks this richly valued, there is little left to rotate into if the economy weakens next year, and the healthcare rotation is well under way. If the economy holds, high rates hurt staples; if it weakens, they are too expensive to hold up even with rate cuts, except perhaps Campbell's. x.com 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
J.M. Smucker is underrated because its brands, including Jif, Smucker's, Dunkin' packaged coffee, Milk-Bone, Meow Mix and fast-growing Uncrustables, are bought every week regardless of the economy. Coffee costs, supply-chain inflation and an underperforming Hostess deal hurt this year, but fiscal Q4 revenue rose 6% and adjusted EPS 20% to $2.77. It has raised its dividend 28 straight years, keeps the payout under 50% and still trades below its historical valuation. 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
