McCormick & Company (MKC)

Total return at 5 years: 12.9%/year = 8.9% appreciation + 4.0% dividend. The target price ($70) is ex-dividend; the $11 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $91 · Multiples $66) exceeds the market price ($46).

Today — fairly valued: at $46 trades ~30.5% below its value discounted to today (~$66); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($70) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$42.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($46) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-8.0%/year) than we project (7.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.5 bn of owner earnings in year 5 (vs ~$1.1 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad neta normalizada (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 = TTM at 31-Aug-2026 (US$7,685.7 million of revenue: FY2025 + nine-month 2026 cumulative − nine-month 2025 cumulative, by levels), incorporated from the 8-K and 10-Q of 1-Oct-2026. Year-0 margins are normalized. Adjusted operating income of US$1,279.1 million (16.6%) adds to GAAP operating income of US$1,032.0 million the TTM special charges (US$231.0 million, mostly transaction and integration costs and a US$43.1 million non-cash impairment) and US$16.1 million of acquired-inventory step-up; normalized earnings of US$807 million (10.5% of sales) also exclude the US$866.8 million gain on the remeasurement of the previously held interest in McCormick de Mexico (XBRL TTM net income, US$1,490.5 million, includes it), apply the adjusted tax rate of 23.5% for the nine months of 2026 and deduct the noncontrolling interest (US$15.8 million). Year 1 (September 2026 to August 2027) is built by levels: the consolidation of McCormick de Mexico (closed 2-Jan-2026) contributed 13.1% to nine-month sales (US$653.7 million, about US$82 million per month over the eight consolidated months), and the TTM contains only those eight months; the four months before consolidation (September to December 2025) are not yet lapped and add about US$327 million (+4.3%) to the base, a declared pro-rata estimate. On that combined base of US$8,012 million, 2% organic growth is applied (midpoint of the 1% to 3% guidance; the third quarter was 1.9%), with no currency effect, giving US$8,173 million (+6.3%). The bear case uses 1% and the bull case 3%, the ends of the reaffirmed guidance. The rolled form from the prior quarter (+15% in year 1) extrapolated an acquisition the TTM already contains and is discarded. From year 2 the growth path keeps its prior rates (6%, 5%, 4.5% and 4%). Year-1 net margin: guided FY2026 adjusted earnings per share (US$3.05 to US$3.13) imply about US$832 million, of which about US$34 million corresponds to unconsolidated affiliates (annualized from the nine months, excluding the gain); the remainder, on FY2026 sales at the midpoint of guidance (13% to 17% growth), gives 10.1%, below the year-0 10.5% because of a full year of noncontrolling interest, the guided 24% tax rate and higher interest. TTM capex (US$214.9 million, from the cash flow statement) is below D&A (US$272.3 million), so all capex is treated as maintenance (maintPct=1.0). Year-0 operating cash flow (14.9% of sales) includes the cash effect of transaction costs. The pending combination with Unilever's food business (announced in March 2026, expected to close in mid-2027) is not in the model: McCormick is valued standalone.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $70 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $46, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $70 in 5 years plus $11 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $66. Against the current market price ($46), the margin of safety is 30.5% (trades below the maximum → there is margin) and the total return at that price would be 12.9% annually.

• Entry multiple. Today's entry multiple is shown in the fact sheet via 15×.
• Margin of safety. Today's margin is described in It trades at a real discount to value, though short of the required margin of safety..
• Dividend yield. Current yield ~3.7% on market price, with historical growth of ~7% annually.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (97%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation. TTM owner earnings compressed by working capital cash use and tariff costs.
• ROIC vs 10% bar. ~9.7% on real invested capital; below the bar, with the goodwill from brand acquisitions as the structural explanation.
• Dividend history. 40 consecutive years of per-share dividend increases.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The Consumer driver is volume/mix × price on proprietary brands sold through retail channels; the Flavor Solutions driver is price × volume on custom supply contracts with food manufacturers and foodservice, with structurally lower margins because brand value is not present in that industrial sale.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-ago-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Organic growth. Guided at 1-3% for FY2026 (1.9% in the third quarter), moderate and typical of a mature consumer staple.
• M&A momentum. The consolidation of McCormick de Mexico contributed 14.6 points to third-quarter growth; it is not extrapolable beyond the four months that year 1 still adds.
• Flavor Solutions volume pressure. Volume/mix -0.2% in FY2025, offset by price +1.3%.

• Category leadership in spices. Global leading brand and category leader in core Consumer markets.
• Customer concentration. Wal-Mart and PepsiCo concentrate ~24% of 2025 consolidated sales.
• Profitability gap by segment. Consumer represents 58% of sales but 67% of operating income; Flavor Solutions is structurally less profitable.
• Agricultural commodity exposure. Price and availability volatility in dairy, black pepper, garlic, tomato, and soy oil.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)5.7x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 97% of ROIC
• ✕Value creation (ROIC − 10% bar)-0pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.8x — no over-investment
• !Float / working capitalConsumes cash $0.1 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.6% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Total debt ~US$3.6 billion; manageable for a consumer staple of this scale.
• Interest coverage. TTM EBIT covers interest expense with reasonable cushion.
• Floating rate exposure. ~US$352 million floating rate debt, weighted average rate ~4.06%.

• Leadership transition. Former president and CEO stepped down from executive chair in March 2025; current CEO name could not be verified in this pass.
• Capital allocation. Dividend-dominant (62% of capital deployed), modest buybacks, disciplined maintenance capex.
• Recent M&A. McCormick de México consolidation (US$750M, January 2026) financed largely with debt.

• Because of the announced transaction: on 31-Mar-2026 McCormick announced the agreement to combine with Unilever's food business (US$15.7 billion in cash according to the financial press, expected to close in mid-2027), and the stock fell that day and hit a 12-month low after a downgrade. The market is discounting the leverage and integration risk of a transaction of that size, which this standalone valuation does not include.
• Operating margin compression (FY2025 versus FY2024) from raw-material costs and tariffs, which the market may be extrapolating beyond what is suggested by the 70 basis-point expansion in adjusted operating margin in the third quarter of 2026.
• Reported TTM net income is distorted by a non-recurring gain (US$866.8 million from the remeasurement of the previously held interest in McCormick de Mexico) and by special transaction and integration charges (US$141.5 million in the third quarter alone), which complicates a quick read of the multiple: the quarter's adjusted result (US$0.86 per share) is more than double the reported one (US$0.36).

The stock trades 36% below its 52-week high. The Layer C search identifies the cause as the combination with Unilever Foods announced on 31-Mar-2026 (financial press from late March 2026; indirect traceability, not a filing). The 8-K of 1-Oct-2026 reaffirms FY2026 guidance and states that integration planning is proceeding as expected; no guidance cut or other subsequent adverse event appeared. The cause is an informationally resolved fact (the transaction is announced and its closing depends on regulatory approvals), so it is an identifiable source of the discount, not an absence of buyers.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +7%/year (+42% total): the margin of safety protects the downside. The bull (+17%/year, +121% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Private label. Declared as the first business risk: private label migration in Consumer.
• Customer concentration. Two customers concentrate ~24% of consolidated sales.
• M&A integration. McCormick de México consolidation is recent and without post-integration track record.
• Cost and tariff inflation. Expected at similar levels to 2025 during FY2026, per company.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC barely matches the 10% bar (the market's opportunity cost), no excess return.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 7% at a PEG of 2.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 10% (EBIT/EV) + ROIC 10% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -8% vs our 7%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +3%/yr, bull-scenario ceiling +13%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -8%, within what we project (7%) — the story squares with the numbers.