Bullishness On FMC 'Makes Sense,' BMO Capital Markets Says In Upgrade

Increased exposure to agriculture stocks like FMC Corp FMC simply "makes sense" after the sentiment surrounding the sector likely troughed — albeit against depressed levels, according to BMO Capital Markets. 

The Analyst

BMO's Joel Jackson upgraded FMC from Market Perform to Outperform with a price target lifted from $90 to $95.

The Thesis

FMC said in late March that its first-quarter earnings will likely exceed the high end of its prior guidance range of $1.45 to $1.49, but its earnings could come in as high as $1.66 per share, Jackson said in the upgrade note.

The chemical manufacturer has been able to leverage its business in Brazil to sell DuPont crop protection chemicals and is better able to leverage DuPont's Indian channel for its legacy crop protection, the analyst said.

In addition, the incremental costs to operate the acquired business are proving to be less than expected, and cost synergies are tracking closer to $80 million rather than FMC's guidance of $60 million, according to BMO. 

Investors should be aware of six risks, Jackson said:

• FMC remains a "crowded long" trade.
• The lithium valuation debate will be front-and-center in the $500-million IPO offering of FMC's lithium business.
• The company could see more costs from the DuPont business over time.
• Competitive concerns.
• Lithium expansion delays and weather issues in Argentina.
• Potential deterioration in the entire agriculture segment.

Price Action

Shares of FMC were up 2.03 percent at the close Thursday. 

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