Has McCormick & Company, Incorporated (MKC) Become the Perfect Stock?

McCormick is famous for its name-brand spices. But much of McCormick’s revenue comes from less visible markets, such as its sales to institutional food companies. Fully 40% of its revenue in 2012 came from its industrial business, where PepsiCo, Inc. (NYSE:PEP) and Yum! Brands, Inc. (NYSE:YUM) rely on McCormick to provide flavoring for their respective food offerings.

Still, McCormick has been vulnerable to pressure from private-label spice brands. Although major customer Wal-Mart Stores, Inc. (NYSE:WMT)‘s test of private-label spices a few years ago hasn’t hurt McCormick’s revenue, the threat remains palpable throughout the industry. In response, McCormick has increasingly played a vital role in actually providing store-brand spices to grocery stores, sacrificing some margins to maintain its competitive moat.

In its most recent quarterly report, McCormick disappointed investors with somewhat weak earnings. Even though Motley Fool Inside Value analyst Joe Magyer argues that it’s still expensive at current valuations, big drops in McCormick’s stock don’t happen very often, and the business still dependably produces ample free cash flow and a solid dividend that has risen every year for more than a quarter-century.

For McCormick to improve, it needs to find new avenues for faster growth and to do its best to shore up its margins. Combine that with some minimal work on its balance sheet, though, and it’s clear that McCormick could rise up toward perfection fairly quickly with minimal effort.

The article Has McCormick Become the Perfect Stock? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends McCormick and (NYSE:MKC) PepsiCo and owns shares of PepsiCo.

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