McCormick & Company, Incorporated (NYSE:MKC) shares fell 4.2% to US$166 in the week since its latest full-year results. It was a credible result overall, with revenues of US$5.3b and statutory earnings per share of US$5.24 both in line with analyst estimates, showing that McCormick is executing in line with expectations. This is an important time for investors, as they can track a company's performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. We thought readers would find it interesting to see analysts' latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the most recent consensus for McCormick from ten analysts is for revenues of US$5.51b in 2020, which is a satisfactory 3.0% increase on its sales over the past 12 months. Statutory per-share earnings are expected to be US$5.31, roughly flat on the last 12 months. In the lead-up to this report, analysts had been modelling revenues of US$5.54b and earnings per share (EPS) of US$5.50 in 2020. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but analysts did make a small dip in their earnings per share forecasts.
The consensus price target held steady at US$154, with analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on McCormick, with the most bullish analyst valuing it at US$185 and the most bearish at US$109 per share. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that McCormick's revenue growth is expected to slow, with forecast 3.0% increase next year well below the historical 6.2%p.a. growth over the last five years. Juxtapose this against the other companies in the market with analyst coverage, which are forecast to grow their revenues (in aggregate) 2.9% next year. Factoring in the forecast slowdown in growth, it looks like analysts are expecting McCormick to grow at about the same rate as the wider market.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on McCormick. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple McCormick analysts - going out to 2023, and you can see them free on our platform here.
You can also see whether McCormick is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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