FMC Earnings: Lower Volumes Will Weigh on 2023 Results With Small Recovery in 2024

FMC’s FMC detailed second-quarter results were largely in line with our revised outlook in July, following the company’s high-level second-quarter update and management’s guidance change. We view 2023 as a down year for the company, as farmers are likely to purchase fewer crop protection products as a way to reduce expense following a drop in crop prices. While we expect demand will return in 2024, we expect a more gradual recovery next year.

With our outlook largely intact, we maintain our $135 per share fair value estimate. Our narrow-moat rating is also unchanged. FMC shares were down slightly at the time of writing as the market reacted to management’s outlook for reduced production through the remainder of the year as FMC looks to reduce inventory amid a slowdown in demand.

However, at current prices, we view FMC shares as materially undervalued, with the stock trading in 5-star territory and at a more-than 30% discount to our fair value estimate. Shares trade less than 10% above our downside scenario. In our downside scenario, we assume little revenue growth and EBITDA margins averaging in the low-20% range, below the mid-20% average over the past several years. Accordingly, we think a lot of the bad news is already priced into the stock and view FMC as offering investors a solid margin of safety.

Additionally, we still see a solid long-term outlook for FMC. Admittedly, the company’s largest product category, the diamides, will go off-patent and see its manufacturing patents expire starting in 2026. However, the company’s strong pipeline of new premium products should largely soften the patent expiration as new products replace current diamide profits. As such, we forecast FMC can still increase operating profits at an average annual mid-single-digit pace over our 10-year forecast in our base case.