FMC: Preliminary Third-Quarter Results Show Continued Destocking Weighing on Profits

FMC reported high-level third-quarter results that were below the low end of guidance. Management also issued revised 2023 guidance with a lower outlook due to continued inventory destocking leading to lower sales volumes than the company had previously forecast. We have updated our model for a lower near-term outlook, and we reduce our FMC fair value estimate to $110 per share from $120. Our narrow moat rating is unchanged.

FMC shares were down 25% at the time of writing as the market reacted negatively to management’s second 2023 guidance cut. Admittedly, the rapid pace of inventory destocking that has occurred in crop chemicals this year caught us by surprise, including the continued strong destocking that occurred in the third quarter in Brazil, FMC’s largest market, which was the basis for management’s guidance cut.

However, we view destocking as a near-term issue. We see no changes to FMC’s competitive positioning or our long-term outlook that premium crop chemicals producers should see above-market growth in the coming years as farmers will continue to pay up for premium products that result in better pest management and higher crop yields.

Accordingly, we view FMC shares as significantly undervalued, with the stock trading at roughly 50% of our updated fair value estimate. Following the Oct. 23 selloff, we think a lot of the bad news is priced into the stock as shares trade below our downside scenario valuation, which produces a fair value estimate of $60 per share. In our downside scenario, we assume roughly flat revenue over our 10-year forecast and assume lower long-term profits and margins as profits do not recover to 2022 levels. As such, for long-term investors, we view the current price as an attractive entry point for FMC shares.