FMC Corp's Brazil And China Concerns Make It Worth Downgrading: Longbow

• FMC Corp FMC shares have lost more than 26 percent year-to-date, declining steadily since mid-May.

Longbow Research’s Dmitry Silversteyn downgraded the rating on the company from Buy to Neutral.
Among other reasons for the downgrade, Silversteyn cited continuing sluggishness of Brazilian ag markets and further weakening of the BRL.
Analyst Dmitry Silversteyn said that there was risk of FMC underperforming in the back half of 2015. There were no signs of fundamental improvement in the LATAM ag markets, which could result in the company missing the consensus EPS estimates. This, in turn, would lead to further multiple compression.

In the report Longbow Research noted, “The early impact of an El Nino weather pattern is already resulting in heavy rains, flooding and mudslides in Argentina, Chile and Southern Brazil which could impact 2H15 crop protection sales, while increased rainfall can drive better yields in 2016, keeping commodity crop prices under pressure and prolonging the current down-cycle in Ag.”

Silversteyn added that there was “diminished likelihood” of fundamental and operational improvements in the back half of this year, “given weaker LATAM markets and potential for lower crop prices and sluggish demand for crop protection chemicals.” This suggests an EPS miss.

The EPS estimates for 2015 and 2016 EPS have been reduced from $0.61 to $1.60 and from $1.12 to $1.08, respectively. The new estimates are below consensus for both 2015 and 2016.

“We are downgrading FMC stock from BUY to NEUTRAL on continuing weakness in Brazilian ag markets, further weakening of the BRL, potential for lower Brazilian crop imports into China and investors' growing risk aversion,” the report added.