The agricultural industry has been affected severely by the COVID-19 pandemic. However, it rebounded in 2021 from its pandemic lows on strong demand, supply chain constraints, and the recovering economy. Since the beginning of 2022, agricultural commodity prices have soared due to increasing costs amid historic 40-year high inflation. Furthermore, the Russia-Ukraine war has triggered a spike in global agricultural commodity prices. Following the COVID-19 omicron variant-related challenges, geopolitical instability has worsened supply chain disruptions of late, further adding to the inflationary pressures.
Given the strong demand and constrained supply of agricultural commodities, commodity prices are projected to soar in the near term. But the rising commodity prices are expected to benefit the agriculture industry handsomely. This represents a great opportunity for investors to add crop protection companies with healthy profits, cash flows, and dividends to their portfolios.
Given these factors, we think it could be advisable to invest in quality crop protection stocks FMC Corporation (FMC) and American Vanguard Corporation (AVD) now.
FMC Corporation (FMC)
FMC in Philadelphia, Pa., is an agricultural sciences company that operates in North America, Latin America, Europe, the Middle East, Africa, and Asia. The company provides crop protection, plant health, pest control, and turf management products. FMC markets its products through its sales organization and independent distributors, alliance partners, and sales representatives.
On Dec. 17, 2021, FMC’s board of directors declared a regular quarterly dividend of 53 cents per share, reflecting a 10% increase. FMC has increased its dividend for the fourth consecutive year and is committed to increasing its dividend further at or above the rate of earnings growth.
On Dec. 10, 2021, FMC signed multi-year agreements with Corteva Inc. (CTVA) to extend the supply of FMC’s Rynaxypyr® and Cyazypyr® activities to Corteva for seed treatment products. These agreements are expected to accelerate its expansion and boost its profitability.
In its fiscal 2021 fourth quarter, ended Dec. 31, 2021, FMC's revenue increased 22.7% year-over-year to $1.41 billion. Its gross margin grew 22.6% year-over-year to $614.70 million. The company's adjusted EBITDA increased 30% from the prior-year period to $377 million. Its adjusted after-tax earnings from continuing operations attributable to FMC stockholders and adjusted earnings per share came in at $274.80 million and $2.16, respectively, registering an increase of 48.3% and 52.1% year-over-year.
The $1.28 billion consensus revenue estimate for its fiscal year 2022 fourth quarter, ending March 31, 2022, represents a 7.1% year-over-year growth from the same period in 2021. The $1.71 consensus EPS estimate for the current quarter indicates an 11.6% year-over-year rise from the prior-year period. It is no surprise that FMC has surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of FMC have increased 20.8% in price year-to-date and 20% over the past year. It closed yesterday's trading session at $132.77.
FMC's POWR Ratings reflect this promising outlook. It has an overall B grade, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
FMC has a B grade for Quality. Within the A-rated Chemicals industry, it is ranked #23 of 87 stocks.
To see additional POWR Ratings (Growth, Stability, Value, Momentum, and Sentiment) for FMC, click here.
American Vanguard Corporation (AVD)
AVD in Newport Beach, Calif., develops, manufactures, markets, and sells specialty chemicals for agricultural, commercial, and consumer uses in the U.S. and internationally. The company sells end-use chemical and biological products for crop applications. It distributes its products through national distribution companies, sales offices, salesforce executives, sales agents, and wholly-owned distributors.
This Month, AVD announced that its Board of Directors had declared a $0.025 cash dividend to be distributed on April 15, 2022. “This dividend payment continues our history of providing cash returns to shareholders based on successful operational and financial performance. The increased quarterly dividend reflects the confidence that the Board of Directors has in our core business, our overall financial strength, and the successful prospects of our strategic growth initiatives,” stated Eric Wintemute, Chairman and CEO of AVD.
AVD's net sales increased 21.4% year-over-year to $556.87 million in its fiscal 2021 fourth quarter, ended Dec. 31, 2021. AVD’s gross profit improved 23.6% year-over-year to $213.24 million. Its operating income grew 35.1% year-over-year to $30.95 million. Its net income increased 21.9% from its year-ago value to $18.59 million. The company’s earnings per common share rose 19.6% year-over-year to $0.61.
Analysts expect AVD's revenue for its fiscal year 2022 first quarter, ending March 31, 2022, to come in at $130.5 million, representing a 12.4% rise year-over-year. The Street expects the company's EPS for the current quarter to come in at $0.20, representing a 100% increase year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
AVD has gained 21.3% in price year-to-date and 22.4% over the past three months and closed yesterday's trading session at $19.88.
AVD's strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Quality, Value, and Sentiment. Within the Chemicals industry, it is ranked #2 of 87 stocks.
Click here to see additional component grades for AVD (Stability, Growth, and Momentum).
FMC shares were trading at $131.96 per share on Thursday afternoon, down $0.81 (-0.61%). Year-to-date, FMC has gained 20.57%, versus a -3.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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