Credit Suisse Is Bullish On McCormick's Ability To Increase Market Share

Credit Suisse’s Robert Moskow believes the recent selloff in McCormick & Company, Incorporated (NYSE: MKC) shares presents a unique opportunity to own “one of the truly competitively advantaged names in the food space while it is still in the early innings of capitalizing on structural demand growth in the spices and seasonings category.”

Moskow upgraded the rating on the company from Neutral to Outperform, with a price target of $111.

The Positives

The analyst believes the stock is well positioned to see positive ratings and expectation revisions driven by category growth, which in turn is being boosted by millennials cooking more meals from scratch.

Moskow also expects McCormick & Company to witness market share acceleration in the United States, due to product innovation and better relationships with retailers.

Related Link: McCormick Issues Voluntary Recall Of Taco Seasoning Due To Unlabeled Milk Allergen

Additionally, the analyst thinks the company will see a re-acceleration in gross margin expansion.

“In addition, we believe new CEO Lawrence Kurzius' more aggressive approach to M&A increases the probability of a highly accretive deal in FY 17,” Moskow stated.

What The Market Is Missing

“After the 3Q earnings call, investors worried that hyperinflation on vanilla beans would compromise McCormick's gross margin momentum and possibly even cause margin dilution in 2017,” the analyst noted.

However, the reality is that the company has been able to effectively pass through its vanilla costs directly to the customer without posing a risk to the inventory position if the price were to start falling.

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