Shares of FMC (FMC 2.32%) plunged 47% this week as of 2 p.m. ET Thursday, according to data from S&P Global Market Intelligence.
FMC had its earnings report this week, and needless to say, investors did not like it. The company is seeing pricing pressure from cheaper generic competitors, denting the agricultural chemical giant's revenue and margins. FMC is also in the process of selling its India business.
On top of all that, management cut the company's dividend by 92%, likely contributing to the massive sell-off.
But does today's pessimism make FMC a deep-value opportunity for long-term investors?
NYSE: FMC
Key Data Points
FMC feels the competitive pressure
In the third quarter, FMC's headline results were disastrous, though a look at adjusted non-GAAP (generally accepted accounting principles) numbers reveal a less dire picture. At a headline level, revenue plunged 49.3% to $542.2 million, while the company's bottom line incurred a massive ($568.6 million) loss, compared with a $65.6 million profit in the year-ago quarter.
However, both revenue and profit lines were affected by adjustments and asset impairments of the company's India business, which management announced it was putting up for sale. Stripping out these adjustments, things were much better, with revenue only down 3.7% when stripping out last year's and this year's India revenue. Meanwhile, adjusted EBITDA (earnings before interest, depreciation, and amortization) was actually up 23% when stripping out the India operations, due to lower costs of goods sold and restructuring efforts taken over the past year.
Still, there remains pricing pressure from generics and softness in some global markets, especially Brazil. For the year, management expects revenue to be down 7%, with adjusted EPS to fall a greater 13%, although a lot of that is due to a higher tax rate. Adjusted EBITDA is expected to only fall by 6%.
So things might not be not as disastrous as the stock's decline implies. However, management also decided to slash the company's dividend per share by 92%, going from a $0.58 quarterly payout to just a $0.08 quarterly dividend. That probably seems prudent, as FMC is still saddled with $4.54 billion in total debt and just over $4 billion in net debt, or about 4.8 times this year's EBITDA estimate.
Until the India business can be sold -- and it's unclear how much the company will get for the business -- it's probably prudent to devote more cash to paying down debt.
Image source: Getty Images.
FMC looks quite cheap but could be a value trap
Having plunged to just $16.19 per share as of this writing and guiding for $2.92 to $3.14 per share in adjusted EPS this year, FMC shares are currently trading at just 5.3 times this year's earnings estimates.
Given that the sell-off may have been exaggerated by the headline numbers and dividend cut, it could be an opportunity for deep-value investors looking for a bargain.
The big risk is that FMC operates in a cyclical business with a high debt load, which could make FMC a value trap. Still, for those familiar with the agricultural cycle who think better times may be ahead, FMC's decline could be an interesting opportunity.
