According to a recent report from Cowen, analysts Ahmed Alamin, Charles Neivert and Jeffrey Rossetti boosted their rating on FMC because they see an ameliorated risk/reward profile at current valuations, which already reflect the weaker backdrop in the agricultural segment and “uncertain crop protection demand.”
Despite of the tough agricultural markets, they believe the mid-cap diversified chemical company has the potential to grow earnings by more than 20 percent on the back of “Cheminova synergies that look achievable, with potential upside” – which should offset macro headwinds.
In fact, they noted, FMC’s specialty offerings combined with its augmented “scale and geographic diversity” make it a Tier 1 provider. This “allows it to better defend pricing/margins.”
Moreover, the experts added, even though the company will face some near-term pressure, they still like “the crop protection business model that has low fixed costs, non-cyclical end-markets, and has shown low correlation to economic cycles with 20-percent-plus operating margins.”
All About Internal Measures
FMC’s earnings growth thesis is driven by internal measures rather than ameliorating conditions in the agricultural segment.
The research note explained, “Unlike commodity agricultural chemicals (NPK), FMC focuses on differentiated specialty formulations, which, (along with its improved scale) allow the company to better defend its prices and margins.” In addition, the analysts see a high probability of synergy upside from the management's $120 million estimate.
Disclosure: Javier Hasse holds no stakes in any of the securities mentioned above.
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