Disruptions caused by COVID-19 led to a significant shortage of agricultural inputs necessary for healthy, abundant crops over the past two years. The supply disruptions have been intensified due to the Russia-Ukraine conflict. The shortage of agricultural inputs and rising demand for food worldwide have led to skyrocketing prices. Among others, fertilizer prices have skyrocketed.
Moreover, innovations in the agricultural sciences to help improve crop protection and enhance crop yield and quality should help the agricultural inputs industry benefit substantially in the coming months.
ICL Group Ltd (ICL) and FMC Corporation (FMC) are two prominent players in the agricultural inputs industry. Headquartered in Tel Aviv, Israel, ICL produces and markets fertilizers, specialty minerals, and chemicals worldwide. The company operates through Industrial Products; Potash; Phosphate Solutions; and Innovative Ag Solutions segments. It sells its products through marketing companies, agents, and distributors. FMC is an agricultural sciences company that provides crop protection, plant health, and professional pest and turf management products to enhance crop yield and quality. It markets its products through its own sales organization and through alliance partners, independent distributors, and sales representatives.
Year-to-date, shares of FMC are trading 8.6% higher and ICL has rallied 16.2%. Which of these stocks is a better pick now? Let’s find out.
Latest Developments
On May 19, 2022, ICL partnered with startup accelerator StartLife to invest in startups focused on addressing global food and agricultural production challenges, ranging from increasing yields and tackling food insecurity to cutting greenhouse gas emissions. As ICL’s ICL Planet Startup Hub seeks to establish a new generation of plant nutrition solutions, this partnership is expected to accelerate innovation in the AgriFood tech ecosystem, along with potential targets like recycling minerals, extracting them from waste streams, and converting them to fertilizers or to developing innovative functional proteins for clean label applications, among others.
On December 9, 2021, FMC signed multi-year agreements with Corteva, Inc.’s (CTVA) Corteva Agriscience company to continue to supply Rynaxypyr and Cyazypyr actives to Corteva for seed treatment products. These multi-year agreements extend the existing global collaboration between the two companies.
Recent Financial Results
ICL’s sales for its fiscal 2022 first quarter ended March 31, 2022, increased 67.2% year-over-year to $2.53 billion. The company’s gross profit came in at $1.25 billion, up 151.5% from the prior-year period. Its adjusted operating income came in at $880 million, indicating a 375.7% year-over-year improvement. While its adjusted net income increased 354.1% year-over-year to $613 million, its adjusted EPS grew 345.5% to $0.49. As of March 31, 2022, the company had $439 million in cash and cash equivalents.
For its fiscal year 2022 first quarter ended March 31, 2022, FMC’s revenue increased 13% year-over-year to $1.35 billion. The company’s gross profit came in at $572.70 million, indicating an 11.8% year-over-year improvement. Its operating income came in at $226.80 million, up 18.6% from the year-ago period. FMC’s net adjusted earnings from continuing operations came in at $238.70 million, up 19.4% from the year-ago period. Its adjusted EPS came in at $1.88, indicating a 22.9% year-over-year improvement. As of March 31, 2022, the company had $365.10 million in cash and cash equivalents.
Past and Expected Financial Performance
Over the past three years, ICL’s revenue, EBITDA, and EPS have increased at CAGRs of 12.7%, 79.7%, and 40.8%, respectively.
ICL’s EPS is expected to increase 182.2% year-over-year in fiscal 2022, ending December 31, 2022, and decline 38.1% in fiscal 2023. Its revenue is expected to grow 47.4% in fiscal 2022 and decline 15.7% in fiscal 2023. Analysts expect the company’s EPS to rise at a 3.9% rate per annum over the next five years.
Over the past three years, FMC’s revenue, EBITDA, and EPS have increased at CAGRs of 6%, 7.4%, and 20.3%, respectively.
Analysts expect FMC’s EPS to grow 9.8% year-over-year in fiscal 2022, ending December 31, 2022, and 15.3% in fiscal 2023. Its revenue is expected to grow 7.6% year-over-year in fiscal 2022 and 5.9% in fiscal 2023. Analysts expect the company’s EPS to grow at an 8% rate per annum over the next five years.
Valuation
In terms of non-GAAP forward PEG, FMC is currently trading at 1.60x, 81.8% higher than ICL’s 0.88x. In terms of forward EV/Sales, ICL’s 1.67x compares with FMC’s 3.41x.
Profitability
ICL’s trailing-12-month revenue is almost 1.5 times FMC’s. ICL is also more profitable, with a 28.9% EBITDA margin versus FMC’s 26.4%.
Furthermore, ICL’s ROE, ROA, and ROTC of 28.4%, 11%, and 15.6% compare with FMC’s 27.4%, 7%, and 10.9%, respectively.
POWR Ratings
While ICL has an overall A grade, which translates to Strong Buy in our proprietary POWR Ratings system, FMC has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both ICL and FMC have been graded a B for Quality, consistent with their higher-than-industry profitability ratios. ICL’s 23.7% trailing-12-month EBIT margin is 66% higher than the 14.3% industry average. FMC has a 23.1% trailing-12-month EBIT margin, 61.9% lower than the 14.3% industry average.
ICL has been graded an A in terms of Growth, which is in sync with its higher-than-industry growth rates over the past year. ICL’s EBIT has grown 390.4% over the past year, 764% above the industry average of 45.2%. FMC’s C grade for Growth reflects its lower-than-industry growth rates. FMC’s EBIT has grown 16.2% over the past year, 64.2% lower than the 45.2% industry average.
Of the 33 stocks in the Agriculture industry, ICL is ranked #1, while FMC is ranked #13.
Beyond what we have stated above, our POWR Ratings system has graded FMC and ICL for Sentiment, Value, Stability, and Quality. Get all FMC ratings here. Also, click here to see the additional POWR Ratings for ICL.
The Winner
Given the heightened need for agricultural inputs to meet the rising demand for food by enhancing crop yields should benefit both ICL and FMC. However, relatively lower valuation and higher profitability make ICL a better buy now.
Our research shows that the odds of success increase if one bets on stocks with an overall POWR Ratings of Buy or Strong Buy. Click here to access the top-rated stocks in the Agriculture industry.
ICL shares were trading at $11.24 per share on Friday afternoon, down $0.13 (-1.14%). Year-to-date, ICL has gained 17.37%, versus a -17.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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