Maintaining $135 FVE as FMC Reports Solid Q1; Shares Slightly Undervalued

Business Strategy & Outlook

FMC is a pure-play crop chemicals producer. The company is one of the five largest patented crop protection companies globally. FMC acquired Cheminova in 2015, increasing exposure to Europe and expanding its portfolio of crop chemicals. In late 2017, FMC acquired DuPont’s divested crop chemicals portfolio, which included blockbuster insecticide Rynaxypyr. At the same time, the company divested noncrop chemicals businesses. FMC is fairly balanced from a geographical standpoint among North America, Latin America, Asia, Europe, the Middle East, and Africa. Latin America is the largest region, contributing 32% of revenue in 2021, while the remaining regions accounted for 20%-25% each. The company is also balanced from a crop exposure standpoint, with soybeans being the largest at nearly 20% of total revenue.

As emerging-market food consumption rises, demand for patented crop chemicals should rise to facilitate yield improvements. FMC’s pipeline of new premium products should generate sales growth

above the general crop chemical industry. Both acquisitions greatly enhanced FMC’s research and development pipeline, which should allow the company to continue producing new crop chemicals as

older products roll off patent. The company plans to launch 10 new molecules over the next decade that feature new modes of action. FMC also plans to launch new biologicals, or environmentally

friendly pesticides. These new products should help farmers fight resistant pests, which are increasingly rendering older crop chemicals ineffective and require new crop chemicals.

FMC’s product portfolio currently skews toward insecticides, which generate over half of revenue. As genetically modified seeds, which are equipped with traits to fight insects, expand to new markets such as China and India over the next decade, the insecticide demand falling over the long term. Conversely, GMO seeds increase herbicide demand. For FMC, most of its new products in the pipeline are herbicides and fungicides, which should result in a more balanced portfolio among the three primary types of crop protection chemicals as new products are commercialized over the next decade.

Financial Strengths

FMC is in good financial health. To calculate a net debt/adjusted EBITDA ratio of roughly 2.5 times as of March 31, 2022. FMC’s leverage ratios fluctuate throughout the year as the company is subject to seasonality. With no large planned capital additions, the company should maintain its financial health and should be able to meet all its financial requirements, including dividends, going forward.

Bulls Say

FMC has transformed its portfolio to focus on crop chemicals, which should see strong growth prospects as yield gains are needed to support rising food consumption from emerging markets.

FMC has a large presence in Brazil, one of the few places with meaningful growth potential in arable land.

FMC’s pipeline should allow the company to continue expanding profits as the patents expire for its two largest molecules over the next decade.

Company Description

FMC is a pure-play crop chemical company. The company has diversified its sales to create a balanced crop chemical portfolio across geographies and crop exposure. Through acquisitions, FMC is now one of the five largest patented crop chemical companies and will continue to develop new products through its research and development pipeline.

(Source: Morningstar)

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