Company Overview: FMC Corporation (NYSE: FMC) is an agricultural sciences company, engaged in offering innovative solutions to farmers worldwide. The company has a strong product portfolio along with a robust development pipeline in crop protection, professional pest plant health, and turf management. FMC’s portfolio incorporates insect control products, which is based on Rynaxypyr and Cyazypyr active ingredients; Authority, Boral, Centium, Command and Gamit branded herbicides; Talstar and Hero branded insecticides; flutriafol-based fungicides; and biologicals.

FMC Details

Acquisition Synergies & Expanding Product Portfolio Aid FMC: An agricultural sciences company, FMC Corporation (NYSE: FMC) is involved in offering innovative solutions to farmers worldwide. The company has strong product portfolio along with a robust development pipeline in crop protection, professional pest plant health, and turf management. On March 1, 2019, the company completed the final split of its Lithium division, which was renamed as Livent Corporation. The company divested approximately 84% stake in Livent to shareholders of FMC in the form of a pro-rata distribution of Livent shares. The development demonstrated the transformation of FMC into a pure-play agricultural sciences company.

In April 2015, the company acquired Denmark-based Auriga Industries’ fully owned unit, Cheminova A/S, for a purchase consideration of $1.8 billion (including debt). The buyout is a strategic fit for FMC as Cheminova has an extremely complementary product portfolio and technologies along with expanded geographic footprint. In 2017, the company completed the acquisition of a major portion of DuPont's Crop Protection business. As per the deal, FMC bought DuPont's Cereal Broadleaf Herbicides and Chewing Insecticides portfolios along with the latter’s crop protection research and development pipeline. The company’s acquisition spree will expand its market position and boost its revenues in the days ahead.

Looking at the past performance, FMC delivered a CAGR of ~35% and ~59.5% in revenues and adjusted EBITDA, respectively, over the period of FY17 to FY19. The company is focused on enhancing its market position and bolstering its product portfolio. In doing so, the company remains on tracks to invest in technologies and products along with new and innovative launches to enhance value to the farmers. The new product unveils are likely to contribute to its volumes in the days ahead.

Revenues & Adjusted EBITDA Trend (Source: Company Reports)

4QFY20 & FY20 Key Highlights: During the quarter, the company reported earnings of 38 cents per share against a loss of 2 cents reported in the prior corresponding period.  Excluding all one-time items, FMC reported adjusted earnings per share of $1.42. During the quarter, the company reported revenues of $1,152.2 million, which was down 4% year over year, owing to 3% lower volumes and 5% unfavorable impact of currencies. In FY20, earnings were reported at $4.22 per share, as compared to $3.62 per share reported in 4QFY19. Adjusted earnings came in at $6.19 per share, depicting an increase of 2% year over year. Revenues for FY20 stood at ~$4,642.1 million, representing a rise of 1% year over year. Notably in 4QFY20, FMC witnessed robust volume gains in EMEA (Europe, Middle East, and Africa) and Asia.

Key Results Highlights (Source: Company Reports)

Geographical Performance: During the quarter, sales in North America declined 34% from the prior corresponding period, owing to supply chain disruptions, due to COVID-19 led pandemic and reduced volumes. The company also witnessed a decline of 9% in Latin America, mainly due to currency fluctuation risk, import disputes in Argentina and drought conditions in Brazil. Nonetheless, sales from EMEA and Asia climbed 45% and 11% year over year, respectively. Sales in these two regions were primarily supported by strength in diamide insecticides and cereal herbicides along with volume gains in India, China, Japan, and Australia.

Regional Highlights (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders together form around 40.84% of the total shareholdings while the Top 4 constitutes the maximum holding. The Vanguard Group, Inc. and Wellington Management Company, LLP are holding a maximum stake in the company at 10.86% and 5.98%, respectively, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

Liquidity & Balance Sheet Details: At the end FY20, the company had cash balance of $568.9 million, depicting a rise of approximately 68% from the prior corresponding period. Further, the company reduced its long-term debt by 3% on a year over year basis, which came in at $2,929.5 million at the end of FY20. Cash flow from operations in FY20 came in at $737 million, with free cash flow amounting to $544 million. In FY21, the company expects share repurchases to be in the range of $400 to $500 million. For Q1FY21, the company expects to increase its dividend by 9%. Total cash to be implemented in 2021 is likely to be ~$700 million. Paying regular dividends is part of FMC’s long-term goal of boosting shareholder value. Current ratio for FY20 stood at 1.55x, higher than the FY19 figure of 1.5x. In FY20, debt to equity multiple stood at 1.1x, lower than the FY19 figure of 1.29x.

Growth and Liquidity Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group  

Risk Analysis: The company’s sale in North America were affected due to supply chain disruptions, owing to COVID-19 led pandemic. Sales in Brazil were also lower than anticipated due to serious drought conditions. This in turn can lead to lower demand for the company’s product, going forward.

The company is exposed to massive headwind from unfavorable foreign currency translation, which might impact sales and margins in the days ahead. Further, FMC is likely to encounter headwinds from cost inflation due to pandemic-led interruptions. Also, stiff competition from peers and a leveraged balance sheet add to the woes.

Outlook: For 2021, the company expects revenues in the range of $4.9 billion and $5.1 billion, depicting an increase of 8% at the midpoint compared to FY20 figure. This increase in top line is likely to be positively impacted by higher volumes with price increases, which will more than offset currency fluctuation headwinds. Adjusted EBITDA for FY21 is expected to be in the range of $1.32-$1.42 billion, signifying a rise of 10% at the midpoint compared to FY20 figure. Whereas the company expects adjusted earnings per share to be in the ambit of $6.65-$7.35, depicting a growth of 13% at the midpoint compared to FY20 figure. The company projects free cash flow to be in the range of $530-$620 million in FY21, signifying a rise of 6% from the prior corresponding period.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last six months, the stock went down by ~1.4%. The stock made a 52-week low and high of $56.77 and $123.66, respectively. On the technical analysis front, the stock has a support level of ~$100.94 and a resistance level of ~$124.2. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer median, considering its synergies from acquisitions, geographical diversification, decent FY20 top and bottom-line growth, and encouraging FY21 view. We have taken peers like Corteva Inc (NYSE: CTVA), LyondellBasell Industries NV (NYSE: LYB), to name few.  Considering the company’s track record of enhancing shareholder’s value, decent liquidity postion, positive cashflows, decent 4QFY20 performance, acquisition synergies, encouraging outlook and valuation, we give a “Buy” recommendation on the stock at the closing price of $107.9, down by 7.27% on 10 February 2021.  

FMC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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