The agricultural industry is an essential component of global food production and the backbone of many national economies, as it accounts for 4% of the global Gross Domestic Product (GDP). The industry has undergone significant changes over the past few decades, with technological advances and changing consumer demands driving innovation and efficiency.
According to Statista, gross production value in the agriculture market is projected to amount to $298.30 billion in 2023. With this in mind, I think fundamentally sound agricultural stocks FMC Corporation (FMC), AGCO Corporation (AGCO), and ICL Group Ltd (ICL) could be solid additions to your portfolio.
Over the past year, the industry endured several challenges, including rising labor, packaging, and distribution costs, high rates of inflation, and lingering supply chain problems, which had a significant impact on production levels and market prices.
However, companies in this space consistently implement cost-reduction actions and pricing strategies to sustain margins while minimizing environmental impact and ensuring the sustainability of natural resources.
Despite these challenges, the long-term outlook of the agriculture market remains positive, driven by rising demand for food due to population growth and dietary changes. As per United Nations estimates, the global population will surge to 8.5 billion in 2030 and 9.7 billion in 2050. This upsurge will propel the demand for agricultural produce.
Furthermore, the industry is set to benefit from the adoption of advanced technologies that will enhance productivity and efficiency, alongside growing attention to sustainability concerns. According to research consulting firm Spherical Insights, the global agritech market is expected to reach $46.37 billion by 2030, growing at a CAGR of 17.3%.
Additionally, the global agriculture market is expected to reach $19.01 trillion in 2027, growing at a CAGR of 9.1%.
Therefore, it could be wise to invest in quality agriculture stocks FMC, AGCO, and ICL. Given their strong fundamentals, constant innovation, and the industry’s defensive nature, these stocks could help garner substantial returns.
FMC Corporation (FMC)
FMC is an agricultural sciences company that engages in the provision of solutions to growers and the development of pipelines in crop protection, plant health, and professional pest and turf management products.
It develops, markets, and sells crop protection chemicals (insecticides, herbicides, and fungicides), biologicals, crop nutrition, and seed treatment products, which is grouped as plant health.
On April 27, FMC announced that its board of directors declared a quarterly dividend of $0.58 per share, payable to its shareholders on July 20, 2023. FMC’s four-year average dividend yield is 1.71%, while its annual dividend of $2.32 translates to a 1.87% yield on the current prices. Its dividend has grown at a 9.7% CAGR over the past three years and a 31.2% CAGR over the past five years.
Moreover, on March 16, FMC became the first U.S. company and only among six companies in the world to have an approved net-zero target by 2035. The company’s net-zero target is aligned with the SBTi Net-Zero Standard of limiting the global temperature rise to 1.5°C.
FMC’s revenue for the first quarter that ended on March 31, 2023, amounted to $1.34 billion, while its gross margin increased marginally year-over-year to $581.30 million. The company’s adjusted EBITDA grew 1.9% from the year-ago value to $361.70 million. Also, its non-GAAP attributable net income and EPS came in at $223.10 million and $1.77 in the same period.
Additionally, its cash and cash equivalent came in at $494.40 million, representing a 35.4% increase from its prior-year quarter value. Also, its total current assets stood at $6.02 billion, up 10.7% from $5.44 billion as of December 31, 2022.
Street expects FMC’s revenue for the second quarter (ending June 2023) to increase 5% year-over-year to $1.53 billion, while its EPS is expected to be $1.82 in the same period. Moreover, it surpassed the EPS estimates in each of its trailing four quarters, which is excellent.
Over the past nine months, the stock has gained 13.4% to close the last trading session at $123.76.
FMC’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Quality. In the 27-stock Agriculture industry, it is ranked #5. To see additional POWR Ratings for FMC for Value, Momentum, Stability, and Sentiment, click here.
AGCO Corporation (AGCO)
AGCO is engaged in manufacturing and distributing agricultural equipment and related replacement parts worldwide. It sells a range of agricultural equipment, including tractors, combines, self-propelled sprayers, hay tools, forage equipment, seeding, and tillage equipment, implements, and grain storage and protein production systems.
On April 27, AGCO declared a special variable dividend of $5 per share, payable on June 20, 2023, and also increased the quarterly dividend by 20.8% from the previous quarter to $0.29 per outstanding share.
This increase reflects confidence in the company’s farmer-first strategy and its ongoing ability to generate strong free operating cash flow. Payment of the $0.29 quarterly dividend will be made to its stockholders on June 15, 2023.
AGCO’s annual dividend of $1.16 translates to a 0.93% yield on prevailing prices, while its four-year average dividend yield is 2.51%. Its dividend payments have grown at a 14.5% CAGR over the past three years and an 11% CAGR over the past five years. Also, it has a record of nine years of consecutive dividend growth.
On April 6, AGCO and Bosch BASF Smart Farming announced the joint development and commercialization of Smart Spraying capabilities on Fendt Rogator sprayers. Such a sustainable solution that maintains productivity while improving profitability and delivering clean fields with maximum savings should witness robust demand from the framers to assist them in generating higher yields.
AGCO’s net sales increased 24.1% year-over-year for the first quarter that ended on March 31, 2023, to $3.33 billion. Its gross profit grew 35.4% from the year-ago value to $854.90 million, while its adjusted income from operations improved 60.1% from the prior-year quarter to $388.80 million.
The company’s non-GAAP net income came in at $263.10 million and $3.51 per share, representing a 46.9% year-over-increase from the prior-year quarter.
The consensus EPS estimate of $3.23 for the second quarter (ending June 30, 2023) represents a 35.6% improvement year-over-year. The consensus revenue estimate of $3.48 billion for the current quarter indicates an 18.1% increase from the same period last year.
The company has an excellent earnings surprise history, as it surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 16.3% over the past nine months to close the last trading session at $124.63.
It’s no surprise that AGCO has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It also has an A grade for Growth and Value and a B for Momentum. Within the same industry, it is ranked #2 of 27 stocks.
In addition to the POWR Ratings we stated above, we also have AGCO’s ratings for Stability, Sentiment, and Quality. Get all AGCO ratings here.
ICL Group Ltd (ICL)
Headquartered in Tel Aviv, Israel, ICL and its subsidiaries, operates as a specialty minerals and chemicals company globally through four segments: Industrial Products; Potash; Phosphate Solutions; and Growing Solutions. Its products include potash and phosphate fertilizers, specialty fertilizers, functional ingredients, flame retardants, and magnesia products.
On April 24, ICL signed a sustainability-linked revolving credit facility worth $1.55 billion with a consortium of leading banks.
Aviram Lahav, CFO of ICL, commented, “ICL is pleased to expand on its commitment to sustainability by enhancing its revolving credit facility to include targeted and specific sustainability metrics and milestones. This new facility follows our debut sustainability-linked loan in September 2021 and enhances our existing focus on ESG practices and our increased transparency regarding all sustainability issues.”
On January 19, ICL announced that its AgriFood innovation and investment platform, ICL Planet Startup Hub, has invested €2.75 million ($2.95 million) in Arkeon, GmbH, to develop CO2-derived protein ingredients for food applications. This aligns with ICL Food Specialties growth strategy of pursuing new frontiers in unique and functional alternative proteins.
In the same month, the company signed a strategic partnership agreement with General Mills, Inc. (GIS) to supply phosphate solutions in North America with the potential for international expansion. Such collaborations should help expand its footprint, thereby boosting the company’s revenue and overall growth prospects.
The company’s four-year average dividend yield is 4.82%, while its annual dividend translates to a 9.1% yield on prevailing prices. Its dividend has grown at CAGRs of 70.8% and 43.8% over the past three and five years, respectively.
During the fiscal fourth quarter (ended December 31, 2022), ICL’s sales grew2.6% year-over-year to $2.09 billion. The company’s adjusted operating and net incomes increased and 22.7% and 5.6% from the same period in the prior year to $562 million and $358 million, respectively. Adjusted EBITDA came in at $698 million, reflecting an 18.9% increase year-over-year.
ICL’s non-GAAP EPS stood at $0.28, up 7.7% from the same period last year. Additionally, its cash flows from operating activities came in at $467 million, representing a 35.8% increase from its prior-year quarter value.
Analysts expect ICL’s EPS and revenue to amount to $0.90 and $8.45 billion for the current fiscal year ending December 2023. Its EPS is expected to increase by 3.9% per annum over the next five years. Additionally, it surpassed the consensus EPS estimates in three of its trailing four quarters, which is impressive.
ICL’s shares have gained 2.8% over the past five days to close the last trading session at $6.11.
ICL’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system
It has an A grade for Value and a B for Quality. In the same industry, it is ranked #4 out of 27 stocks. Click here to see the other ratings of ICL for Growth, Momentum, Stability, and Sentiment.
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FMC shares were trading at $115.85 per share on Tuesday afternoon, down $7.91 (-6.39%). Year-to-date, FMC has declined -6.72%, versus a 7.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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