High quality McCormick & Company is not the best defensive buy
McCormick & Company (NYSE: MKC) it’s a high-quality consumer staple and a healthy dividend payer, so it should be a good defensive move for the times. The problem is that McCormick & Company is among the most valued consumer commodities on the market and pays one of the lowest dividends. While investors without exposure to the Consumer Staples group may be interested in McCormick & Company for its safety and performance, we are not. We don’t care because there are some much better plays for investors to sink their teeth into. Near the top of the list is General Mills (NYSE: GIS) which trades at a much lower valuation and pays almost double the yield and issued a favorable guide as opposed to the very weak prospects McCormick offers.
Wind assembly for McCormick & Company
McCormick & Company had a decent quarter despite headwinds, the problem is that results are lukewarm even with adjustments and no loss of revenue is expected to be recovered. The company posted net income of $ 1.54 billion, down -1.3% from last year, which lost the consensus mark by 430 basis points. The company estimates that the VOCID blockades in China, the war in Ukraine and the growing supply chain challenges cost them 400 basis points of revenue, which is good news, but not enough to make up for the shortfall. . The bad news is that rising costs intensified toward the end of the quarter and cut the end result more deeply than expected.
Turning to the margin, the company recorded a decrease of 32% in the adjusted operating margin which is largely due to increases in entry costs. That left adjusted gains at $ 0.48 or a 30% year-over-year drop and $ 0.17 or 2600 basis points worse than Marketbeat.com’s consensus and targeting is no better. The company expects to see an improvement in revenue and margins in the later half of the year as price increases tighten, but the outlook is still lukewarm relative to expectations. The company is looking for revenue growth in the range of 3% to 5% compared to the consensus estimate of 4.25% and EPS in the range of $ 3.03 to $ 3.08 versus 3.16 dollars. In our opinion, with inflation on the rise, we think the company may have difficulty improving its margin without a significant rise in prices.
McCormick’s dividend is safe, General Mills is attractive
McCormick pays a safe dividend that produces around 1.7% with a share price at 27.5 times the earnings outlook. Payment is only 46% of earrings and has increased over the last 35 consecutive years, so we don’t expect a suspension or even a cut. We expect to see the distribution increase, but at a CAGR of less than 9% that has been running, unlike General Mills which has just increased its payment and at a faster pace than expected. Trading with only 18x gains and a 3.0% return with an equally secure payment, we find that General Mills is much more attractive and the price action suggests market aggression with us.
Technical Perspectives: McCormick & Company may have bottomed out
The price action at McCormick & Company may have bottomed out, but we’re not betting on a rebound. Price action fell more than 5.0% following the report and is forming a possible Hammer Doji, but the session is not closed. If the market confirms this fund, it could move sideways over the next few months, unlike General Mills, which is about to recover. General Mills advanced 5.0% after its report and is trading at a new high. Assuming General Mills experiences multiple price expansion to a level consistent with current Consumer Staples leaders, it could advance 50% or more as McCormick & Company rolls over to its current levels.