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Why McCormick & Company, Incorporated Might Keep Falling

By Brian Pacampara – Jan 30, 2014 at 10:12AM

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Does this analyst make a good case or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of McCormick & Company, Incorporated (MKC -0.23%) slipped about 1% this morning after Deutsche Bank downgraded the spices and seasonings specialist from buy to hold.

So what: Along with the downgrade, analyst Eric Katzman lowered his price target to $66 (from $73), representing just 1% worth of upside to its closing price on Wednesday. While contrarians might be attracted to yesterday's earnings-related plunge, Katzman thinks there might be room to fall given the ongoing sluggishness in the U.S. and Europe.

Now what: According to Deutsche, McCormick's risk/reward trade-off isn't too attractive at this point. "When even a highly focused company like McCormick cannot deal with consumer / retail fragmentation, it is clear that no player is immune to US/EU challenges," noted Katzman. "After 10+ years of expanding its presence in niches (spices, DSM, marinades, grilling, ethnic), McCormick is struggling as bifurcation (see our updated Quadrant Analysis) occurs at the high and low end of the market." When you couple those challenges with McCormick's industry-premium P/E of 20, it's tough to disagree with Deutsche's downgrade. 

Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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