Among the three major lithium stocks available to investors today, FMC Corp. (FMC 7.51%) has performed the best since the beginning of 2018. It's not really a close race. The company has seen its shares slide 11.5%, while the stock prices of peers Albemarle (ALB +2.98%) and Sociedad Quimica Y Minera De Chile (SQM) (SQM 1.99%) are down more than 25% apiece.
Turns out there's a good reason for the divergence: In the first half of 2018, FMC Corp. derived 92% of revenue and 87.5% of segment EBITDA from its agricultural solutions business. It's still one of the top lithium stocks and producers, but the fate of the business and stock is largely dictated by the strength of its pesticide sales. Judging from second-quarter and first-half 2018 earnings results, that's not exactly a bad deal for investors.
But with the upcoming spinoff of the lithium segment in October 2018, is FMC Corp. stock a buy right now, or should investors wait?
Image source: Getty Images.
By the numbers
In March 2017, FMC Corp. stepped in to help Dow Chemical and DuPont complete their megamerger by buying a significant portion of the latter's crop protection business. Upon closing in November 2017, the acquisition made FMC Corp. one of the world's largest agricultural technology companies virtually overnight. The impact is easy to see when comparing first-half 2018 operating results to the year-ago period.
|
Metric |
First Half 2018 |
First Half 2017 |
Change (YOY) |
|---|---|---|---|
|
Total revenue |
$2.47 billion |
$1.25 billion |
97% |
|
Agricultural solutions, revenue |
$2.26 billion |
$1.11 billion |
103% |
|
Lithium, revenue |
$210 million |
$139 million |
51% |
|
Total segment EBITDA |
$801 million |
$269 million |
197% |
|
Agricultural solutions, EBITDA |
$700 million |
$215 million |
225% |
|
Lithium, EBITDA |
$101 million |
$53.5 million |
90% |
|
Total net income |
$397 million |
($49.5 million) |
N/A |
Source: FMC Corporation press release.
The agricultural solutions business continues to exceed all expectations. At the time the acquisition was announced, management expected the segment to deliver about $3.8 billion in annual revenue. The latest full-year 2018 guidance calls for the segment to generate $4.1 billion to $4.3 billion in sales and EBITDA in the neighborhood of $1.2 billion. Much of that is due to the strength of the insecticides portfolio, which recorded nearly as much revenue in the first six months of this year as the entire company did in the year-ago period.
A strong agricultural portfolio is exactly what investors want to see prior to the separation of FMC Corp. into two companies. That's especially true with the lithium segment, which will become Livent Corp. in October 2018, humming along. During the first half of 2018, nearly half of the segment's revenue was derived from high-grade lithium hydroxide -- the sought-after material for lithium-ion battery manufacturing and also the highest-margin lithium material. Management expects the lithium segment to generate full-year 2018 revenue in the neighborhood of $445 million and EBITDA of around $200 million.
While efficient at turning sales into profits, FMC Corp.'s lithium segment will rank third globally behind SQM and Albemarle. As of this writing, SQM has only reported operating performance for the first quarter of 2018. It generated $164 million in lithium segment revenue but doesn't report segment EBITDA. Considering the company's major expansion projects aren't slated to begin contributing until the second half of the year, investors can estimate that first-half 2018 revenue for lithium will be around $330 million.
That means Albemarle is far in the lead with production and sales volumes, but FMC Corp. is holding its own with a strong EBITDA margin.
|
First Half 2018 Metric |
FMC Corp. |
Albemarle |
|---|---|---|
|
Lithium segment revenue |
$210 million |
$615 million |
|
Lithium segment EBITDA |
$101 million |
$272 million |
|
Lithium segment adjusted EBITDA margin |
48.2% |
44.3% |
Source: SEC filings, press releases.
The health of the lithium segment bodes well for life as a separate publicly traded company. It will have its work cut out in terms of expanding production over the years to keep pace with peers, but Livent Corp. is well positioned to do just that. In fact, the company is planning on boasting 30,000 metric tons per year of lithium hydroxide capacity by 2020, 80% of which is expected to be on line by the end of this year. That should help the company to maintain its margin edge with peers, even if the total production volumes keep it looking up at Albemarle and SQM in the standings.
Image source: Getty Images.
To wait for the spinoff or not?
The profitable growth of both operating segments makes FMC Corp. stock worthy of consideration for any portfolio. Individual investors simply need to consider whether they want to own both the agricultural solutions business (FMC Corp.) and lithium materials business (Livent Corp.) or be more selective once the spinoff is completed in October 2018. Investors that own FMC Corp. stock before that date will receive shares of Livent Corp. once it becomes a separately listed company. Considering the parent's shares are down by double digits so far this year, and the lithium segment continues to be strong, there could be an opportunity for long-term investors at the current stock price.
