MCCORMICK & CO INC (MKC) stock intrinsic value fair value estimate & owner earnings analysis

McCormick is the world's leading spice and seasoning company. Its Consumer segment (about 58% of 2025 sales and 67% of operating profit) sells McCormick, French's, Frank's RedHot, Lawry's, Cholula, Club House, Zatarain's, OLD BAY, Ducros, Schwartz and Kamis through grocery, mass-market and online retailers; Walmart alone was about 12% of 2025 sales. Flavor Solutions (42% of sales, 33% of profit) makes custom seasonings, coatings and flavors for food manufacturers and restaurant chains, and its top three customers account for 49% of that segment's sales. On January 2, 2026 McCormick paid $750 million to raise its stake in McCormick de Mexico (mayonnaise and other condiments) from 50% to 75%, so that business is now fully consolidated with a 25% outside owner. How we measured earnings. We start from operating cash flow, remove working-capital swings, charge stock compensation as a real cost, and deduct the capital spending needed to keep the business running (spending tied to sales growth, about 3.75 cents per added dollar of sales, is treated as growth investment). On that basis owner earnings were $2.72 a share in 2021, $2.17 in 2022, $2.42 in 2023, $2.54 in 2024 and $2.90 in 2025. Because we value the business before its lenders and then subtract the debt, we add back cash interest ($193 million in 2025), giving cash flow before interest of $3.22, $2.72, $3.17, $3.32 and $3.62 a share for 2021 through 2025. We use the 2021-2025 median of $3.22, the period since the Cholula and FONA acquisitions; it spans both the 2022 inflation squeeze and the 2025 tariff year. We add $0.13 a share for the extra 25% of McCormick de Mexico (its 2025 profit, implied by McCormick's share of joint-venture income, was about $134 million), for a starting level of $3.35 a share, roughly $900 million a year. The large non-cash gain booked in early 2026 from revaluing the original Mexican stake is excluded, as is the 2022 gain on selling a business and a brand. Amortization of acquired intangibles is only about $35 million a year and most acquired value sits in brand names that do not wear out, so no separate decay adjustment is needed beyond the bear case. Growth check: cash flow before interest rose 9% in 2025 (owner earnings rose 14%, helped by capital spending falling to $222 million from $275 million); the base case assumes 1.5% in year one, well below that. Debt. At May 31, 2026 borrowings were $4.93 billion: $1.33 billion of short-term borrowings (up after funding the Mexico purchase and repaying the notes that came due in February 2026) and $3.6 billion of notes, including $750 million at 3.40% due August 2027, $500 million at 2.50% due 2030, $500 million at 1.85% due 2031, $1.0 billion at 4.70-4.95% due 2033-2034 and $300 million at 4.20% due 2047. Because those fixed coupons sit below our 6% rate for years, we credit about $299 million; we also deduct about $231 million of cash above operating needs, for net debt of about $4.40 billion, or $16.35 a share. Even in the bear case, cash flow before interest covers the interest bill more than three times, so refinancing the 2027 notes and the short-term borrowings is not the swing factor. Bear case ($27.13 a share): tariffs and commodity inflation hold earnings at the 2022 squeeze level of $2.85 a share. Pepper and many other spices and herbs are sourced outside the U.S., and tariffs were among the costs that cut 2025 gross margin by 60 basis points. There is no growth for ten years, then a 1% yearly erosion as retailer bargaining power (Walmart at 12% of sales) and store brands bite. The business is worth about $11.7 billion; less $4.4 billion of net debt leaves $7.3 billion for shareholders. Base case ($50.92 a share): earnings start at $3.35 and rise 1.5% a year for twenty years, then stay flat with no further growth assumed. The 1.5% rests on McCormick's record of passing commodity costs through to prices: sales grew from $5.30 billion in 2018 to $6.84 billion in 2025, and acquisitions explain only part of that, although per-share cash flow grew more slowly as margins absorbed inflation. The twenty-year span rests on global category leadership in spices and seasonings and Flavor Solutions customer relationships the company describes as decades old. The business is worth about $18.1 billion; less $4.4 billion of debt leaves $13.7 billion. Bull case ($72.37 a share): earnings start at $3.60 (the 2025 level with capital spending at its five-year average of $260 million) and grow 2.5% a year for twenty years as pricing and the company's continuous cost-savings program keep pace with costs, then 1% a year. The business is worth about $23.9 billion; less $4.4 billion of debt leaves $19.5 billion. Not credited in any case: management's 2026 sales outlook, expansion into Latin America through the Mexican business, and future acquisitions, none of which is yet in hand. Change from our previous estimate. Our August 2026 estimate ($13.70 bear, $31.00 base, $52.10 bull) discounted after-interest earnings at 8.25-11% and assumed 1.5-6.5% growth. We now value the business before its lenders at a fixed 6% rate, carry risk in the spread between the cases rather than in the rate, assume slower growth (0-2.5%), and include the Mexico purchase with its $750 million of extra borrowing. The higher values come from the change in rate and approach, not from a brighter view of the business. What would make this wrong: a lasting step-down in margins from tariffs or retailer pressure (second-quarter 2026 net income fell to $150 million from $175 million, with interest expense up to $63 million from $51 million; one quarter does not move our starting level, but two or three more would); loss of a major Flavor Solutions customer; or another large debt-funded acquisition at a full price.