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Morningstar | Strong 2018 Continues for FMC; Maintaining $90 FVE With Largely Unchanged Outlook

FMC supported a strong 2018 in the third quarter as the crop chemical and lithium businesses continued to generate solid profit growth. In its earnings release, management slightly increased its outlook for sales and profits in the agricultural solutions segment. Although we've slightly raised our near-term forecast, our long-term outlook is unchanged and the increase is not enough for us to move our fair value estimate. As a result, we maintain our $90 fair value estimate for the narrow-moat company.

FMC management said it is targeting early 2019 to divest its majority stake in Livent, which was formerly FMC's lithium business. We continue to be in favor of separating the two businesses as each will have a more focused management team and will not need to compete with the other for capital allocation. Our base-case FMC fair value estimate assumes the Livent spin-off occurs at our $18 Livent fair value estimate. To the extent that FMC is able to sell its Livent shares for more or less, our FMC fair value estimate could rise or fall.

In the agricultural solutions segment, revenue grew 5% year on year to $924 million during the quarter on a pro forma basis (this includes the DuPont crop chemical acquisition in 2017 results). The growth was driven by greater sales of crop chemical blockbuster Rynaxypyr in North America, partially offset by lower sales in Europe, the Middle East, and Africa and foreign-exchange headwinds in Asia. Our long-term outlook for FMC's crop chemical business is intact. We continue to forecast that FMC will generate solid crop chemical revenue and profit growth over the next several years until 2022 thanks to Rynaxypyr and Cyazypyr insecticides, which generate over a fourth of crop chemical sales. However, we continue to see patent replacement risk for FMC as the Rynaxypyr and Cyazypyr molecules go off patent in 2022 and 2024, respectively.