Now that the latest data on inflation and demand in the United States economy are out and the Federal Reserve (the Fed) has decided to cut interest rates for a third consecutive time, a new cycle in agriculture stocks and the manufacturing sector might be underway. This is why today’s view on a key supplier in the industry becomes important for investors to consider moving forward.
Egg prices and their spike surprised many investors in recent days as the PPI index came out. While there are some stock picks that can lead investors to a potential market-beating run in the coming months, now is the time to start considering other verticals to keep the momentum going in the agricultural space. This is where fertilizer and machinery stocks come into play.
Surely, stocks like Caterpillar Inc. (NYSE: CAT) and Deere & Co. (NYSE: DE) are potential picks to see higher demand in the new agricultural cycle, not to mention other verticals like construction as interest rates come down. However, before machinery and equipment make their way to farms and fields, FMC Co. (NYSE: FMC) is likely to come out as the first winner in this theme as a fertilizer and specialty chemical manufacturer, as this land needs preparation before being worked on.
Wall Street Analysts Recognize the Upside Inherent in FMC Stock
The price of fertilizer is coming down, which means input costs for companies like FMC are also coming down. Now that demand is coming back for the industry, this will likely result in higher margins for the company and its earnings. Activity in the manufacturing and services PMI indexes would reiterate this theme.
Out of all the industries in these sectors, the trend favors the chemical and agricultural industries together, placing the odds in favor of names like FMC today. This can be seen through the current earnings per share (EPS) forecasts for the next 12 months coming out of Wall Street.
Analysts now see up to $0.98 in EPS next year, which translates into a significant jump of 42% from today’s $0.69 EPS. This expansion is enough to keep the momentum alive for the tick price in the coming months, which is why other analysts are willing to express their bullish views through ratings and price targets.
Those at Mizuho were bold enough to lead the pack as of November 2024, as they placed a valuation of up to $70 a share, up from their previous view of $64 a share. To prove this new valuation, FMC stock would have to rally by as much as 42.5% from where it trades today, which also matches the current EPS projections for next year.
Markets Agree With This View: How Comparables Look
Knowing what Wall Street thinks of a stock is only half the equation; the other half is figuring out what Main Street thinks of the stock in question. Investors can gauge this side by checking on FMC stock and its ratios next to comparable peers like Mosaic Co. (NYSE: MOS) and CF Industries Inc. (NYSE: CF).
When it comes to earnings growth, FMC stock’s 42% EPS growth is above the forecasted 0.5% for Mosaic stock and the 6% contraction for CF Industries. That opens up the possibility of preference for FMC over its peers in the fertilizer and agriculture specialty chemicals industry shortly.
Then comes the fact that those at State Street decided to boost their institutional holdings in FMC stock by 27.3% as of November 2024, bringing their net position to a high of $417.1 million or 5% ownership in the company. This gives investors another bullish metric to consider when developing their potential buy case.
There’s a reason beyond the analyst EPS forecasts to credit the upside in FMC stock today, and it comes from a new management strategy. FMC management just added Anthony DiSilvestro to the company’s board of directors, someone who has years of experience as the chief financial officer (CFO) at Mattel Inc. (NASDAQ: MAT) to effectively implement the cost-cutting plans now put in motion at FMC.
If successful, this program would add to the tailwinds behind FMC stock, as the effects of these cost-cutting initiatives may not be reflected yet in today’s EPS projections. This is another factor investors need to consider in the current theme working behind FMC stock.
One last check can be made by zooming out to other verticals in the agriculture value chain, and that’s where Caterpillar and Deere's stock comes into play. For Caterpillar, analysts at J.P. Morgan Chase felt confident enough in these trends to keep an overweight rating on Caterpillar and a price target of $515 a share to call for up to 41.5% upside from where it trades today.
The trend continues for Deere stock, as those at Jefferies Financial Group see a $510 valuation for the company with a 20% upside from today’s levels. The fact that Wall Street is bullish on two verticals of the same industry should give investors the confidence they need to act on the PMI and PPI trends from recent weeks, and FMC is the outlier.