History Signals McCormick Stock's Post-Earnings Swing is Uncertain

Is McCormick stock cooking up a comeback?

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McCormick & Company, Incorporated (NYSE:MKC) is an American multinational food company that manufactures, markets, and distributes spices, seasoning mixes, condiments, and other flavoring products to the entire food industry. The company offers its products across 160 countries and territories through retail outlets, food manufacturers, foodservice businesses, and e-commerce channels.

McCormick stock has increased 32% year-over-year and has increased nearly 50% since hitting a 52-week low of $58.45. This afternoon shares of MKC are down 0.4% at $97.49, about 17% below their September record high of $105.54. McCormick stock also offers a forward dividend of $1.36 and a dividend yield of 1.55%. The food company has paid dividends to shareholders since 1972.

MKC is slated to report its fiscal first-quarter 2021 financial results before the open on Tuesday, March 30. In recent history, McCormick has outperformed earnings expectations on two of the four most recent earnings reports released, and came in-line with estimates for another. For the first quarter of 2020, McCormick beat analyst estimates by a margin of $0.02 and reported an earnings per share (EPS) of $0.54. For the second quarter of 2020, MKC increased its EPS to $0.73 and beat expectations by a margin of $0.15. For the third quarter of 2020, McCormick had another increase in earnings, rising to $0.76 per share and meeting analyst estimates. In the most recent quarterly report, McCormick reported an EPS of $0.79 and missed expectations by $0.02.

From a fundamental perspective, McCormick doesn’t have a whole lot to offer investors beyond its long history of dividend payments. Considering MKC only has $423.6 million in cash to balance out $5.05 billion in debt, the company’s balance sheet is far from stable. Likewise, its revenues and net income have lacked consistency in recent years.

Nonetheless, in fiscal 2020, McCormick grew its revenues by about $250 million, or 4.7%, and increased its net profits by $45 million, or 6.36%. However, McCormick stock still trades at a high price-earnings ratio of 31.50. MKC's forward price-earnings ratio of 29.67 is also relatively pricey, giving McCormick stock little hopes of significant appreciation in the coming years.

Regardless, now looks like an excellent time to get in on MKC's next move with options. The security's Schaeffer's Volatility Index (SVI) of 25% stands in the 1st percentile of its annual range, implying options traders are pricing in extremely low volatility expectations for the equity at the moment.

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