Will FMC Stock Rise 2x To Pre-Inflation Shock Highs?

FMC Corporation stock (NYSE: FMC), an agricultural science company focused on products to improve crop yield and quality, currently trades around $64 per share, roughly 51% below its pre-inflation shock highs of around $131 seen in April 2022. FMC has fared much worse than its peer – CF Industries stock (NYSE: CF) – down 10% over this period. FMC stock has been weighed down after falling sales volume and destocking dampened its financial performance over the last year or so. Its business in Latin America also took a massive hit, with sales down 33% y-o-y in 2023. FMC saw its stock trading at around $101 in June 2022, just before the Fed started increasing rates, and it’s still trading 36% below those levels. This compares with 51% gains for the S&P 500 index over this period.

The decrease in FMC stock over the recent years has been far from consistent, with annual returns being more volatile than the S&P 500. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is much less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could FMC face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a recovery? Returning to the pre-inflation shock level of $130 implies that FMC stock will have to gain around 2x from here, and we don’t think that will materialize anytime soon. We do think FMC stock has a some room for growth. It currently trades at 2x trailing revenues, compared to its average P/S ratio of 2.3x seen over the last three years. Notably, the $72 average of analysts price estimate reflects around 12% upside from here.

Our detailed analysis of FMC Corporation’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen since 2022. It compares these trends to the stock’s performance during the 2008 recession.

• 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
• April 2021: Inflation rates cross 4% and increase rapidly.
• Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
• June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
• July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
• October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P 500 recoup some of its losses.
• August 2023 – August 2024: Fed has kept interest rates unchanged to quell fears of a recession and keep inflation in check
• September 2023: Fed cut rates by 50 bps and pointed to more rate cuts going forward

In contrast, here’s how FMC stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

FMC and S&P 500 Performance During 2007-08 Crisis

FMC stock declined 20% from nearly $18 in September 2007 (pre-crisis peak for the markets) to $14 in March 2009 (as the markets bottomed out). It bounced after the 2008 crisis to levels of around $20 in early 2010, rising nearly 40% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

FMC’s Fundamentals Over Recent Years

FMC Corporation’s revenue declined from $5.0 billion in 2021 to $4.1 billion in the last twelve months. This can be attributed to lower sales volumes amid destocking of its products. A drought in Brazil last year also weighed on its sales. Not only did the company see its sales decline, its operating margin contracted from 22.5% in 2021 to 13.9% now. However, there has been some recovery this year. The company’s Q2 sales were up 4% -y-o-y on an organic basis. The North America region led this growth with sales rising 24% y-o-y. Its adjusted earnings of $0.63 per share were up 26% y-o-y.

Looking forward, FMC expects its revenue to be in the range of $4.30 billion to $4.50 billion in 2024, reflecting a 2% decline at the midpoint versus 2023. It expects adjusted earnings to be in the range of $3.02 to $3.64 per share, reflecting a decline of 12% at the midpoint versus 2023.

Does FMC Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

FMC’s total debt increased from $3.3 billion in 2021 to $4.2 billion now, while its cash decreased from $517 million to $472 million over this period. The company also garnered $481 million in cash flows from operations in the last twelve months. Given that FMC’s market capitalization is $8 billion, a debt level of $4 billion implies a high debt to equity ratio of around 50%. Its cash as a percentage of assets of under 4% is low. This implies that the company’s financial position isn’t great.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiments, we believe FMC Corporation (FMC) stock has the potential for some gains once fears of a potential recession are allayed. That said, the pressure on the company’s sales volume and a large debt obligation, remains a significant risk factor to realizing these gains.

While FMC stock has room for some gains, check out how FMC’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 9/20/2024
[2] Cumulative total returns since the end of 2016

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