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Morningstar | Although Balchem's Core Business Is a Steady Performer, the CM-AT Opportunity Injects Uncertainty

Balchem manufactures ingredients, nutrients, and chemicals for a wide variety of end markets, including human nutrition, animal nutrition, and industrial applications. The human nutrition and health segment provides ingredients for the food and beverage industry, as well as human-grade choline and organic mineral compounds for wellness applications. Balchem also manufactures microencapsulated products for ruminant animals and choline chloride for animal feed via its animal nutrition and health segment. The specialty products business packages and distributes ethylene oxide for the sterilization of medical devices and propylene oxide to protect against insects and the microbiological spoilage of food. The industrial products segment primarily sells choline chloride derivatives for hydraulic fracturing projects.Balchem enjoys market leadership and limited competition across many of its key product lines. For human-grade choline, the company is one of only four global players and shares the vast majority of the market with a Spanish company, Algry. It also has a leading market share in chelated and specialized minerals, thanks to its 2016 acquisition of Albion International. Balchem is a market leader in choline-based animal nutrition solutions, maintaining above a 75% market share for both choline chloride and encapsulated choline. In the United States, the company effectively maintains a monopoly in the production and distribution of ethylene oxide and propylene oxide derivatives. It owns roughly a 50% market share for choline chloride oil and gas drilling applications.We forecast a 4.5% adjusted earnings CAGR over our five-year explicit forecast period. The primary driver of higher earnings will be increased consumption of human-grade choline. This will be supported by the Food and Drug Administration’s recently established reference dietary intake recommendation, as well as increased inclusion in prenatal vitamins and better distribution. Over a longer time period, we also anticipate that the company’s exposure to pharmaceutical delivery systems will boost profits.