2023-09-14 09:37:58 ET
Summary
- FMC Corporation is an agricultural sciences company with a $9.2 billion market cap.
- The company specializes in crop protection, pest and turf products, and operates internationally.
- FMC has implemented partner licensing strategies to mitigate the impact of patent expirations and maintain profit margins.
- The current undervaluation, 3.1% dividend yield, and attractive 9.6% 3-year dividend growth rate make it an attractive investment.
Agricultural sciences company FMC Corporation ( FMC ) has a $9.2Billion market cap, was founded in 1883 and is headquartered in Philadelphia, PA.
It specializes in crop protection, pest and turf products, herbicides, fungicides and seed treatments operating internationally in North Am., Latin Am., Europe, The Middle East, Africa, and Asia.
The most recent bearishness comes as its diamides patent expiration began in 2022 with the product being sold generically now primarily in China and India, with the manufacturing patents beginning to expire in 2026. However, it still owns Sulfentrazone, its third-largest patented product, which helps farmers treat glyphosate resistant type acres.
FMC has implemented partner licensing strategies for the patent expirations with generic crop chemical producers that allow continuance of solid profit margins, however with lower sales. The strategy includes licensing the molecule with developing new formulations that are more effective than the original version, which should soften the impact of generic products in the long run. The challenges, however, will continue through 2023, headwinds should be temporary, and resolve with earnings improving into 2024 and 2025. Most of this information was obtained at Morningstar/M* from analyst Seth Goldstein's Sept 7, 2023, report. Below is the M* suggested valuation chart.
Morningstar Analyst Chart Price
Seeking Alpha 5-year price chart and technical information is below.
Value Line Analyst
The premium analyst information from Value Line "VL" gives it a safety rating of 3, right in the middle, as 1 is the best and 5 bad. The financial rating is "A", which is very favorable, and the price targets for over an 18-month range are $88-$186 with a $137 midpoint target. With the price today below even the lowest suggested, FMC is a great value today.
Broker TD Ameritrade CFRA
CFRA analysis from the broker TD Ameritrade on Sept. 9th gives it a $105 price target for 12 months from now. It indicates that is a hold if you own it.
FAST Graph
The technical chart from FAST Graph below is for ~3 years past and ~2 future estimated years (dotted lines). The dark green area of the chart represents earnings and the earnings per share yield is 8.89% as listed on the right side in the FAST Facts area.
The black line for price definitely shows the rather huge recent drop. Statistics at the top of the chart show high and low prices, those at the bottom are for earnings, change each year and the dividend. The earnings have been dipping, but the price has definitely gone deeper and seems to be somewhat unwarranted. The chart also shows earnings rising at the end of 2023 and into 2024 and 2025 by mid to high double digits. The white line shows the dividend and that it is covered by earnings. Where that line hits the side of the chart indicates the payout level, which is ~30% of earnings and quite low.
The current P/E is 11.25x, shown in the right-side FAST Facts area. The normal (blue line) P/E being 17.09x is also shown in the chart. This stock is certainly below fair value in all regards. However, cash flows could be temporarily stretched with the earnings drop, but they should be able to maintain the dividend.
The yield sits near 3.1% and with the ~10% dividend raises it makes for a good dividend growth stock of quality with the BBB- S&P credit rating.
The Dividend
FMC pays quarterly in January, April, July, and October.
It has announced the next dividend to be 58c which goes ex September 28th with payment being October 19th. The 5-year dividend growth rate (5yr DGR) is ~35% but has been slowing with the 3yr DGR being 9.8%. The last raise given in January 2023 was 5c from 53c to 58c = 9.4%. To be very truthful, I am not expecting as much in January 2024, but there should be a raise.
Summary/Conclusion
The next raise will reveal how the patent expiration has hurt FMC. The raises on top of a nice 3.1% yield is definitely why I own it, along with the quality S&P credit rating of BBB-. Owning it or adding on now should offer nice future price growth with a safe rising dividend that should continue with a possible slightly lower raise in 2024, maybe, but it will give a raise. It is a long position in Rose's Income Garden "RIG" portfolio of 81 stocks found at The Macro Trading Factory.
For further details see:
FMC Corp.: Great Value Buy With 10% Dividend Growth