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FMC Corp (FMC) - Comprehensive analysis

We are adding FMC, a pure-play in crop chemicals, to our Best Ideas list. We believe FMC shares are significantly undervalued, currently trading in 5-star territory well below our fair value estimate of $95 per share. FMC's competitive advantage stems from its patent-protected and differentiated premium crop protection products, which farmers are willing to pay a premium for due to their effectiveness in combating pests such as insects, weeds, and fungi that can harm crops and diminish yields. FMC shares have declined as the market questions the company's growth outlook, following two years of declining profits and management's guidance for lower results in the first half of 2025. This decline is primarily attributed to inventory destocking, as farmers and retailers accumulated excess supply during 2021 and 2022 due to concerns over COVID-related supply chain disruptions. As supply chains began to normalize in 2023, this excess inventory started to unwind, negatively impacting sales. This inventory fluctuation was particularly pronounced in Brazil, FMC's largest market. Consequently, while FMC outperformed its crop chemicals peers in 2021 and 2022, it has underperformed since. A near-term challenge is that FMC's diamides, a class of insecticides that target ryanodine receptors in insects, will begin to go off patent in 2025. Diamides accounted for 35% of sales in 2024 and represent FMC's largest product category. However, the company has a robust pipeline of new products, including those recently launched and others set to launch in the coming years. We anticipate that these new products will more than offset the decline in diamide profits in the future. We expect the end of inventory destocking and growth from new product sales to drive FMC's sales and profits back to growth starting in the second half of 2025. Increased profits should serve as a catalyst for share price appreciation in the upcoming quarters.

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