Intrinsic value of McCormick & Company, Incorporated - MKC

Previous Close

$169.94

  Intrinsic Value

$72.04

stock screener

  Rating & Target

str. sell

-58%

Previous close

$169.94

 
Intrinsic value

$72.04

 
Up/down potential

-58%

 
Rating

str. sell

We calculate the intrinsic value of MKC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 22.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  5,517
  5,644
  5,789
  5,952
  6,132
  6,330
  6,546
  6,779
  7,031
  7,301
  7,589
  7,897
  8,225
  8,574
  8,944
  9,336
  9,750
  10,189
  10,653
  11,142
  11,659
  12,203
  12,778
  13,382
  14,019
  14,690
  15,396
  16,139
  16,921
  17,743
Variable operating expenses, $m
  3,571
  3,636
  3,711
  3,794
  3,887
  3,989
  4,099
  4,219
  4,348
  4,487
  3,895
  4,053
  4,221
  4,400
  4,590
  4,791
  5,004
  5,229
  5,467
  5,718
  5,983
  6,262
  6,557
  6,867
  7,194
  7,539
  7,901
  8,282
  8,683
  9,105
Fixed operating expenses, $m
  1,032
  1,055
  1,078
  1,102
  1,126
  1,151
  1,176
  1,202
  1,229
  1,256
  1,283
  1,311
  1,340
  1,370
  1,400
  1,431
  1,462
  1,494
  1,527
  1,561
  1,595
  1,630
  1,666
  1,703
  1,740
  1,778
  1,818
  1,858
  1,898
  1,940
Total operating expenses, $m
  4,603
  4,691
  4,789
  4,896
  5,013
  5,140
  5,275
  5,421
  5,577
  5,743
  5,178
  5,364
  5,561
  5,770
  5,990
  6,222
  6,466
  6,723
  6,994
  7,279
  7,578
  7,892
  8,223
  8,570
  8,934
  9,317
  9,719
  10,140
  10,581
  11,045
Operating income, $m
  914
  953
  1,000
  1,056
  1,119
  1,191
  1,270
  1,358
  1,454
  1,559
  2,412
  2,533
  2,664
  2,804
  2,954
  3,114
  3,285
  3,466
  3,659
  3,864
  4,081
  4,311
  4,554
  4,812
  5,085
  5,373
  5,678
  5,999
  6,339
  6,698
EBITDA, $m
  1,811
  1,854
  1,906
  1,966
  2,035
  2,112
  2,198
  2,292
  2,395
  2,507
  2,628
  2,759
  2,899
  3,049
  3,210
  3,381
  3,563
  3,757
  3,963
  4,182
  4,414
  4,659
  4,919
  5,194
  5,485
  5,793
  6,118
  6,461
  6,822
  7,204
Interest expense (income), $m
  58
  254
  262
  271
  281
  292
  305
  319
  334
  351
  369
  388
  408
  430
  453
  478
  504
  532
  561
  592
  625
  659
  696
  734
  775
  818
  863
  910
  960
  1,013
  1,068
Earnings before tax, $m
  660
  691
  729
  775
  827
  886
  951
  1,024
  1,103
  1,190
  2,024
  2,125
  2,234
  2,351
  2,476
  2,610
  2,753
  2,905
  3,067
  3,239
  3,421
  3,615
  3,820
  4,037
  4,267
  4,510
  4,768
  5,039
  5,326
  5,630
Tax expense, $m
  178
  187
  197
  209
  223
  239
  257
  276
  298
  321
  546
  574
  603
  635
  669
  705
  743
  784
  828
  874
  924
  976
  1,031
  1,090
  1,152
  1,218
  1,287
  1,361
  1,438
  1,520
Net income, $m
  482
  504
  532
  566
  604
  647
  694
  747
  805
  869
  1,477
  1,551
  1,631
  1,716
  1,808
  1,905
  2,010
  2,121
  2,239
  2,364
  2,498
  2,639
  2,789
  2,947
  3,115
  3,293
  3,480
  3,679
  3,888
  4,110

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  10,469
  10,710
  10,985
  11,294
  11,636
  12,012
  12,421
  12,864
  13,341
  13,853
  14,401
  14,985
  15,608
  16,269
  16,971
  17,715
  18,502
  19,334
  20,214
  21,143
  22,123
  23,156
  24,246
  25,394
  26,602
  27,875
  29,215
  30,625
  32,108
  33,668
Adjusted assets (=assets-cash), $m
  10,469
  10,710
  10,985
  11,294
  11,636
  12,012
  12,421
  12,864
  13,341
  13,853
  14,401
  14,985
  15,608
  16,269
  16,971
  17,715
  18,502
  19,334
  20,214
  21,143
  22,123
  23,156
  24,246
  25,394
  26,602
  27,875
  29,215
  30,625
  32,108
  33,668
Revenue / Adjusted assets
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
Average production assets, $m
  4,728
  4,837
  4,961
  5,101
  5,255
  5,425
  5,610
  5,810
  6,025
  6,257
  6,504
  6,768
  7,049
  7,348
  7,665
  8,001
  8,356
  8,732
  9,129
  9,549
  9,992
  10,458
  10,950
  11,469
  12,015
  12,590
  13,195
  13,831
  14,501
  15,206
Working capital, $m
  28
  28
  29
  30
  31
  32
  33
  34
  35
  37
  38
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  81
  85
  89
Total debt, $m
  4,846
  5,012
  5,202
  5,415
  5,651
  5,911
  6,193
  6,498
  6,828
  7,181
  7,559
  7,962
  8,392
  8,848
  9,332
  9,845
  10,388
  10,963
  11,570
  12,211
  12,887
  13,600
  14,352
  15,144
  15,978
  16,856
  17,781
  18,753
  19,777
  20,853
Total liabilities, $m
  7,224
  7,390
  7,580
  7,793
  8,029
  8,288
  8,571
  8,876
  9,205
  9,559
  9,937
  10,340
  10,769
  11,226
  11,710
  12,223
  12,766
  13,341
  13,948
  14,589
  15,265
  15,978
  16,730
  17,522
  18,356
  19,234
  20,158
  21,131
  22,154
  23,231
Total equity, $m
  3,245
  3,320
  3,405
  3,501
  3,607
  3,724
  3,851
  3,988
  4,136
  4,294
  4,464
  4,645
  4,838
  5,043
  5,261
  5,492
  5,736
  5,994
  6,266
  6,554
  6,858
  7,178
  7,516
  7,872
  8,247
  8,641
  9,057
  9,494
  9,953
  10,437
Total liabilities and equity, $m
  10,469
  10,710
  10,985
  11,294
  11,636
  12,012
  12,422
  12,864
  13,341
  13,853
  14,401
  14,985
  15,607
  16,269
  16,971
  17,715
  18,502
  19,335
  20,214
  21,143
  22,123
  23,156
  24,246
  25,394
  26,603
  27,875
  29,215
  30,625
  32,107
  33,668
Debt-to-equity ratio
  1.490
  1.510
  1.530
  1.550
  1.570
  1.590
  1.610
  1.630
  1.650
  1.670
  1.690
  1.710
  1.730
  1.750
  1.770
  1.790
  1.810
  1.830
  1.850
  1.860
  1.880
  1.890
  1.910
  1.920
  1.940
  1.950
  1.960
  1.980
  1.990
  2.000
Adjusted equity ratio
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  482
  504
  532
  566
  604
  647
  694
  747
  805
  869
  1,477
  1,551
  1,631
  1,716
  1,808
  1,905
  2,010
  2,121
  2,239
  2,364
  2,498
  2,639
  2,789
  2,947
  3,115
  3,293
  3,480
  3,679
  3,888
  4,110
Depreciation, amort., depletion, $m
  898
  901
  905
  910
  915
  921
  927
  934
  941
  949
  217
  226
  235
  245
  255
  267
  279
  291
  304
  318
  333
  349
  365
  382
  400
  420
  440
  461
  483
  507
Funds from operations, $m
  1,379
  1,406
  1,438
  1,476
  1,519
  1,567
  1,622
  1,681
  1,746
  1,817
  1,694
  1,777
  1,866
  1,961
  2,063
  2,172
  2,288
  2,412
  2,543
  2,683
  2,831
  2,987
  3,154
  3,329
  3,515
  3,712
  3,920
  4,140
  4,372
  4,617
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
Cash from operations, $m
  1,379
  1,405
  1,437
  1,475
  1,518
  1,566
  1,620
  1,680
  1,745
  1,816
  1,693
  1,775
  1,864
  1,959
  2,061
  2,170
  2,286
  2,410
  2,541
  2,680
  2,828
  2,985
  3,151
  3,326
  3,512
  3,709
  3,917
  4,136
  4,368
  4,612
Maintenance CAPEX, $m
  -155
  -158
  -161
  -165
  -170
  -175
  -181
  -187
  -194
  -201
  -209
  -217
  -226
  -235
  -245
  -255
  -267
  -279
  -291
  -304
  -318
  -333
  -349
  -365
  -382
  -400
  -420
  -440
  -461
  -483
New CAPEX, $m
  -91
  -109
  -124
  -140
  -155
  -170
  -185
  -200
  -215
  -231
  -247
  -264
  -281
  -299
  -317
  -336
  -356
  -376
  -397
  -419
  -443
  -467
  -492
  -518
  -546
  -575
  -605
  -637
  -670
  -705
Cash from investing activities, $m
  -246
  -267
  -285
  -305
  -325
  -345
  -366
  -387
  -409
  -432
  -456
  -481
  -507
  -534
  -562
  -591
  -623
  -655
  -688
  -723
  -761
  -800
  -841
  -883
  -928
  -975
  -1,025
  -1,077
  -1,131
  -1,188
Free cash flow, $m
  1,134
  1,139
  1,152
  1,170
  1,193
  1,222
  1,255
  1,293
  1,336
  1,384
  1,237
  1,295
  1,358
  1,426
  1,500
  1,579
  1,664
  1,755
  1,852
  1,956
  2,067
  2,185
  2,310
  2,443
  2,584
  2,734
  2,892
  3,059
  3,237
  3,424
Issuance/(repayment) of debt, $m
  149
  166
  190
  213
  236
  259
  282
  306
  329
  353
  378
  403
  429
  456
  484
  513
  543
  574
  607
  641
  676
  713
  752
  792
  834
  878
  924
  973
  1,023
  1,076
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  149
  166
  190
  213
  236
  259
  282
  306
  329
  353
  378
  403
  429
  456
  484
  513
  543
  574
  607
  641
  676
  713
  752
  792
  834
  878
  924
  973
  1,023
  1,076
Total cash flow (excl. dividends), $m
  1,283
  1,305
  1,342
  1,383
  1,430
  1,481
  1,537
  1,599
  1,665
  1,737
  1,615
  1,698
  1,787
  1,882
  1,984
  2,092
  2,207
  2,330
  2,459
  2,597
  2,743
  2,898
  3,062
  3,235
  3,418
  3,612
  3,816
  4,032
  4,260
  4,501
Retained Cash Flow (-), $m
  -63
  -75
  -85
  -96
  -106
  -116
  -127
  -137
  -148
  -159
  -170
  -181
  -193
  -205
  -218
  -231
  -244
  -258
  -273
  -288
  -304
  -320
  -338
  -356
  -375
  -395
  -415
  -437
  -460
  -484
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  1,220
  1,230
  1,256
  1,287
  1,323
  1,364
  1,410
  1,461
  1,517
  1,578
  1,445
  1,517
  1,594
  1,677
  1,766
  1,861
  1,963
  2,071
  2,187
  2,309
  2,440
  2,578
  2,724
  2,879
  3,043
  3,217
  3,401
  3,595
  3,800
  4,017
Discount rate, %
  8.60
  9.03
  9.48
  9.96
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.42
  27.74
  29.12
  30.58
  32.11
  33.71
  35.40
PV of cash for distribution, $m
  1,123
  1,035
  957
  881
  805
  730
  657
  586
  517
  451
  342
  292
  246
  205
  167
  134
  105
  81
  61
  45
  33
  23
  16
  10
  7
  4
  3
  1
  1
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

McCormick & Company, Incorporated is engaged in manufacturing, marketing and distributing spices, seasoning mixes, condiments and other flavorful products to the food industry, including retailers, food manufacturers and foodservice businesses. The Company's segments include consumer and industrial. The Company is involved in the manufacturing and sales of flavorful products. As of November 30, 2016, it offered brands for consumers in approximately 150 countries and territories. The Company's brands in the Americas include McCormick, Lawry's, and Club House, as well as brands, such as Gourmet Garden and OLD BAY. It provides a range of products to food manufacturers and foodservice customers. The Company's sales, distribution and production facilities are located in North America, Europe and China. It markets regional and ethnic brands, such as Zatarain's, Stubb's, Thai Kitchen and Simply Asia. The Company offers sensory testing, culinary research, food safety and flavor application.

FINANCIAL RATIOS  of  McCormick & Company, Incorporated (MKC)

Valuation Ratios
P/E Ratio 45.1
Price to Sales 4.8
Price to Book 13.1
Price to Tangible Book
Price to Cash Flow 32.4
Price to Free Cash Flow 42.2
Growth Rates
Sales Growth Rate 2.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 20.3%
Cap. Spend. - 3 Yr. Gr. Rate 9%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 64.8%
Total Debt to Equity 88.9%
Interest Coverage 11
Management Effectiveness
Return On Assets 11.3%
Ret/ On Assets - 3 Yr. Avg. 10.6%
Return On Total Capital 15.4%
Ret/ On T. Cap. - 3 Yr. Avg. 14.2%
Return On Equity 28.6%
Return On Equity - 3 Yr. Avg. 25.1%
Asset Turnover 1
Profitability Ratios
Gross Margin 41.5%
Gross Margin - 3 Yr. Avg. 40.9%
EBITDA Margin 17.1%
EBITDA Margin - 3 Yr. Avg. 16.3%
Operating Margin 14.5%
Oper. Margin - 3 Yr. Avg. 13.8%
Pre-Tax Margin 13.3%
Pre-Tax Margin - 3 Yr. Avg. 12.7%
Net Profit Margin 10.7%
Net Profit Margin - 3 Yr. Avg. 10.1%
Effective Tax Rate 26%
Eff/ Tax Rate - 3 Yr. Avg. 26.2%
Payout Ratio 46.2%

MKC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MKC stock intrinsic value calculation we used $5409 million for the last fiscal year's total revenue generated by McCormick & Company, Incorporated. The default revenue input number comes from 0001 income statement of McCormick & Company, Incorporated. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MKC stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.6%, whose default value for MKC is calculated based on our internal credit rating of McCormick & Company, Incorporated, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of McCormick & Company, Incorporated.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MKC stock the variable cost ratio is equal to 65%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1010 million in the base year in the intrinsic value calculation for MKC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for McCormick & Company, Incorporated.

Corporate tax rate of 27% is the nominal tax rate for McCormick & Company, Incorporated. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MKC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MKC are equal to 85.7%.

Life of production assets of 55.6 years is the average useful life of capital assets used in McCormick & Company, Incorporated operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MKC is equal to 0.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $3182.2 million for McCormick & Company, Incorporated - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 132.152 million for McCormick & Company, Incorporated is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of McCormick & Company, Incorporated at the current share price and the inputted number of shares is $22.5 billion.

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