Chemicals Stocks

FMC Corporation Valuation – July 2016 $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 10 Companies Benjamin Graham Would Invest In Today – June 2016.  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 showing 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 serving agricultural, consumer and industrial markets. The Company operates through three business segments: FMC Agricultural Solutions, FMC Health and Nutrition, and FMC Lithium. The Company’s FMC Agricultural Solutions segment develops, markets and sells over three classes of crop protection chemicals, including insecticides, herbicides and fungicides. Its FMC Health and Nutrition segment focuses on nutritional ingredients, health excipients and functional health ingredients. FMC Health and Nutrition is a supplier of microcrystalline cellulose, carrageenan, alginates, natural colorants, pectin and omega-3, which has applications in the production of food, pharmaceutical, nutraceutical and other specialty consumer products. Its FMC Lithium segment manufactures lithium for use in a range of lithium products, which are used in energy storage, specialty polymers and chemical synthesis application.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of FMC – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,732,069,592 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.04 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 92.09% Pass
6. Moderate PEmg Ratio PEmg < 20 15.93 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.03 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.04 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.32 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

FMC value chart July 2016

EPSmg $2.77
MG Growth Estimate 3.41%
MG Value $42.49
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $40.19
MG Value based on 0% Growth $23.56
Market Implied Growth Rate 3.72%
Current Price $44.16
% of Intrinsic Value 103.93%

FMC Corp qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.26 in 2012 to an estimated $2.77 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 3.72% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

FMC Corp performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

FMC charts July 2016

Net Current Asset Value (NCAV) -$10.98
Graham Number $29.00
PEmg 15.93
Current Ratio 2.04
PB Ratio 3.03
Current Dividend $0.66
Dividend Yield 1.49%
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $2,955,200,000
Total Current Liabilities $1,451,300,000
Long-Term Debt $1,986,200,000
Total Assets $6,390,400,000
Intangible Assets $1,670,500,000
Total Liabilities $4,430,200,000
Shares Outstanding (Diluted Average) 134,304,000

Earnings Per Share History

Next Fiscal Year Estimate $2.55
Dec2015 $3.66
Dec2014 $2.29
Dec2013 $2.16
Dec2012 $3.00
Dec2011 $2.55
Dec2010 $1.18
Dec2009 $1.56
Dec2008 $2.01
Dec2007 $0.86
Dec2006 $0.84
Dec2005 $0.74
Dec2004 $1.07
Dec2003 $0.19
Dec2002 $0.48
Dec2001 -$2.72
Dec2000 $0.88
Dec1999 $1.64
Dec1998 $0.76
Dec1997 $1.10
Dec1996 -$0.05

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.77
Dec2015 $2.83
Dec2014 $2.36
Dec2013 $2.29
Dec2012 $2.26
Dec2011 $1.80
Dec2010 $1.38
Dec2009 $1.39
Dec2008 $1.24
Dec2007 $0.81
Dec2006 $0.75
Dec2005 $0.45
Dec2004 $0.20
Dec2003 -$0.13
Dec2002 -$0.12
Dec2001 -$0.17
Dec2000 $1.03

Recommended Reading:

Other ModernGraham posts about the company

10 Most Undervalued Companies for the Defensive Investor – May 2016
10 Most Undervalued Companies for the Defensive Investor – February 2016
10 Low PE Stocks for the Defensive Investor – February 2016
18 Best Stocks For Value Investors This Week – 1/30/16
FMC Corporation Valuation – January 2016 Update $FMC

Other ModernGraham posts about related companies

Eastman Chemical Company Valuation – July 2016 $EMN
Dow Chemical Co Valuation – July 2016 $DOW
Olin Corporation Valuation – June 2016 $OLN
LyondellBasell Industries Valuation – June 2016 $LYB
Praxair Inc Valuation – June 2016 $PX
Albemarle Corp Valuation – February 2016 $ALB
Airgas Inc Stock Valuation – February 2016 $ARG
Air Products & Chemicals Inc Valuation – February 2016 $APD
FMC Corporation Valuation – January 2016 Update $FMC
Eastman Chemical Co Valuation – January 2016 $EMN

Disclaimer:

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.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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