FMC Corporation Analysis – June 2015 Quarterly Update $FMC
Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – May 2015. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis giving a specific look at how FMC Corporation (FMC) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): FMC Corporation is a diversified chemical company. The Company serves agricultural, consumer and industrial markets with solutions, applications and products around the world. The Company operates in three business segments: FMC Agricultural Solutions, FMC Health and Nutrition, and FMC Lithium. The Company’s FMC Agricultural Solutions segment develops, markets and sells three classes of crop protection chemicals, which include insecticides, herbicides and fungicides. The FMC Health and Nutrition segment focuses on food, pharmaceutical ingredients, nutraceuticals, personal care and similar markets. The pharmaceutical additives are used for binding, encapsulation and disintegrant applications. The Company’s FMC Lithium segment manufactures lithium products.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion -Â PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years -Â PASS
- Dividend Record – has paid a dividend for at least 10 straight years -Â PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -Â PASS
- Moderate PEmg ratio – PEmg is less than 20 -Â FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 -Â PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
Valuation Summary
Key Data:
| Recent Price | $57.18 |
| MG Value | $60.56 |
| MG Opinion | Fairly Valued |
| Value Based on 3% Growth | $38.56 |
| Value Based on 0% Growth | $22.60 |
| Market Implied Growth Rate | 6.50% |
| Net Current Asset Value (NCAV) | -$4.09 |
| PEmg | 21.50 |
| Current Ratio | 1.65 |
| PB Ratio | 5.32 |
Balance Sheet – March 2015
| Current Assets | $3,330,000,000 |
| Current Liabilities | $2,016,000,000 |
| Total Debt | $1,151,000,000 |
| Total Assets | $5,312,000,000 |
| Intangible Assets | $558,000,000 |
| Total Liabilities | $3,877,000,000 |
| Outstanding Shares | 133,600,000 |
Earnings Per Share
| 2015 (estimate) | $3.14 |
| 2014 | $2.29 |
| 2013 | $2.16 |
| 2012 | $3.00 |
| 2011 | $2.55 |
| 2010 | $1.18 |
| 2009 | $1.56 |
| 2008 | $2.01 |
| 2007 | $0.86 |
| 2006 | $0.83 |
| 2005 | $0.73 |
Earnings Per Share – ModernGraham
| 2015 (estimate) | $2.66 |
| 2014 | $2.36 |
| 2013 | $2.29 |
| 2012 | $2.26 |
| 2011 | $1.80 |
| 2010 | $1.38 |
Dividend History
Conclusion:
FMC Corporation is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio as well as the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.80 in 2011 to an estimated $2.66 for 2015.  This level of demonstrated growth supports the market’s implied estimate of 6.5% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value falling within a margin of safety relative to the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on FMC Corporation (FMC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclaimer: Â The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. Â Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
