Option Trade 
McCormick & Company, Incorporated (NYSE:MKC) Calls 
Wednesday, 5th October, 2016

** OPTION TRADE: Buy the MKC DEC 16 2016 100.000 call at approximately $1.30. Place a pre-determined sell at $2.60.

Note: No protective stop losses added -- but if you wish to do so make it $0.50.

by Ian Harvey

October 05, 2016

McCormick & Company, Incorporated (NYSE: MKC), a manufacturer, marketer and distributer of spices, seasoning mixes, condiments and other flavorful products to the food industry, including retailers, food manufacturers and foodservice businesses, advanced on Friday as the company reported a strong quarter that was full of positives. Sales grew 6% on a constant currency basis (in line with estimates), and EPS beat $0.09. Management raised full-year EPS guidance on a constant currency basis by 12-13%.

The acquisitions of Stubbs and Gourmet Garden added 2 percentage points of growth, but MKC continued to generate strong organic growth through product innovation, marketing, and pricing. MKC is taking the steps it needs to in order to overcome one of the biggest challenges facing its business, and we are optimistic the company can achieve similar organic growth over the next four years.

Since reporting MKC has pulled back and is now providing a nice entry price for this options trade.

McCormick & Co. has a 50 day moving average price of $99.37 and a 200-day moving average price of $99.28. McCormick & Co. has a 52 week low of $78.45 and a 52 week high of $107.84. The company has a market capitalization of $12.30 billion, a price-to-earnings ratio of 26.86 and a beta of 0.47.

Why McCormick & Co?

Thanks to its market leadership position, MKC can better withstand the pressures weighing on the spices and seasoning industry. MKC has 20% market share, more than 4 times as much as the next largest competitor, and has the financial resources and scale to outspend its rivals on marketing and R&D. MKC has spent an average of 7% of sales on branding and R&D over the past five years, and because the company can spread these fixed costs across higher volumes, these investments are more economical than they would be for smaller competitors.

Furthermore, MKC can mitigate the pressure on volumes by raising prices. The firm's broad portfolio of leading brands makes the company a critical supplier for retailers and gives MKC pricing power.

Analyst Input

Gabelli raised their FY2016 earnings per share (EPS) estimates for McCormick & Co. in a note issued to investors on Monday. Gabelli analyst S. Donnelly now forecasts that the firm will post earnings per share of $3.80 for the year, up from their prior forecast of $3.75.

Also, several other equities research analysts have recently commented on the company.

• Citigroup Inc. raised McCormick & Co. from a “sell” rating to a “neutral” rating and lifted their price objective for the company from $85.00 to $102.00 in a report on Thursday, June 23rd.

• Deutsche Bank AG cut their price objective on McCormick & Co. from $113.00 to $112.00 and set a “buy” rating for the company in a report on Friday, September 23rd.

• Finally, Zacks Investment Research raised McCormick & Co. from a “hold” rating to a “buy” rating and set a $113.00 price target for the company in a report on Thursday, August 18th.

One equities research analyst has rated the stock with a sell rating, five have issued a hold rating and three have issued a buy rating to the company’s stock. The stock has an average rating of “Hold” and an average price target of $104.

Harvey’s Options Volatility Indicator


Overall, McCormick is focusing on building sales through acquisitions, and expects strong sales momentum to continue in fiscal 2016. Its cost saving initiative is also appealing.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the MKC DEC 16 2016 100.000 call at approximately $1.30. Place a pre-determined sell at $2.60.

Note: No protective stop losses added -- but if you wish to do so make it $0.50.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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