NEW YORK (TheStreet) -- McCormick & Co. (MKC) - Get Report, a global leader in spices, seasoning mixes and various food condiments, will report fiscal second-quarter earnings results Wednesday before the opening bell, but those who think it is time to take profits in the stock because it is trading at all-time highs, should think again.
To better appeal to new and changing consumers trends, the Sparks, Md.-based McCormick, is changing its marketing approach.
And the company, which has been in business for more than 120 years, is enjoying stronger sales volumes, buoyed by new growth initiatives and a focus on giving customers what they want. Its improvement is also evident from the average analysts' earnings projections.
For the fiscal second quarter ended last month, the company is projected to earn 68 cents a share on revenue of $1.03 billion, which would be a year-over-year increase of 6.25% and flat growth, respectively. For the full fiscal year ending in November, earnings are projected to grow 3.5% above a year earlier to $3.49 a share, while revenue of $4.27 billion calls for growth of about 1% year over year.
Although 3.5% earnings growth for this year may not be all that exciting, McCormick is projected to double that growth in fiscal 2016, reaching $3.75 a share, marking 7.5% growth. This among other reasons is why there is still value in these shares, despite the stock making new all-time highs.
In that regard, with almost 9% stock gains this year against just 1% gains in the S&P 500 (SPX) , it would seem that the market has bought into McCormick's growth strategies. The stock's performance stands out even more when paired against gains of less-than half of 1% for the entire consumer staples group.
But the valuation level is a concern.
Although the stock may not scream "bargain" at 26 times earnings against a price-earnings ratio of 21 for the S&P 500, investors should focus more on the value that McCormick can create, especially when it appears that the company might have already seen the worst of its declines. In addition, the strength of the dollar is becoming less of a negative factor as foreign currencies regain strength.
To the extent that this can continue, it bodes well for McCormick, which projects its addressable market to grow to $14 billion in the next three years, up from about $10 billion. And with McCormick projected to increase fiscal full-year 2015 revenue just 1% to $4.27 billion, this still implies strong opportunities.
Assuming McCormick increases revenue in the next three years at an annual rate of 5% (its 10-year average), this puts its full-year revenue right around $5 billion by 2018. This means that McCormick expects to capture some 35% of the $14 billion addressable market for spices in the next three years.
This would explain why shares of McCormick are trading near all-time highs. McCormick has put plans in motion for the next several years, and it sees no signs of slowing down.
Accordingly, ahead of the Wednesday's earnings results, buy the stock at this level and hold it for the long term, while collecting McCormick's 40-cent quarterly dividend that yields 2% annually.
This article is commentary by an independent contributor. At the time of publication, the author held no shares in any of the stocks mentioned.