Archer-Daniels-Midland Company (ADM) procures, transports, stores, and merchandises agricultural commodities and products internationally. The company operates through three segments: Ag Services and Oilseeds; Carbohydrate Solutions; and Nutrition. On the other hand, FMC Corporation (FMC) is an agricultural sciences company that operates in North America, Latin America, Europe, the Middle East, Africa, and Asia. It offers crop protection, plant health, and professional pest and turf management products.
The agriculture industry has been in the limelight so far this year, thanks to solid demand and elevated food prices. The spike in food prices is driven by the ongoing Russia-Ukraine war and the increasing cost of fertilizer and energy. The deepening supply chain disruptions resulted in an imbalance between the demand and supply of agricultural commodities, leading to a surge in commodity prices. However, the World Food Price Index dropped 0.6% in May to 157.4 points but is still close to a record high of 159.7 points hit in March. The uptrend in prices has resulted in solid upswings in the agriculture stocks. According to a report by The Business Research Company, the global agriculture market is projected to reach $18.81 trillion in 2026, growing at a CAGR of 10.7%. Thus, the rapid growth in the agricultural industry will benefit both ADM and FMC.
ADM has gained 28.2% in price over the past six months, while FMC has gained 4.1% over this period. Also, ADM’s shares have gained 23% year-to-date, in contrast to FMC’s 1.4% decline during the same period. Moreover, in terms of past year’s performance, ADM is the clear winner with 28.9% gains versus FMC’s negative returns of 7.2%. Which of these stocks is a better buy now? Let’s find out.
Latest Developments
On May 12, 2022, ADM announced its plans to make investments for significant expansion of starch production at its Marshall, Minnesota facility to meet fast-growing demand from the food, beverage, and industrial sectors. The new investments might accelerate the continued expansion of the company’s BioSolutions platform and the evolution of its Carbohydrate Solutions business.
On December 16, 2021, FMC’s Board of Directors declared a regular quarterly dividend of 53 cents per share, registering an increase of 10%. The dividend was paid on January 20, 2022. 2022 marks the rise in FMC’s dividend for the fourth consecutive year. The regular dividend increase reflects the company’s strong financial position.
Recent Financials Results
ADM’s revenues increased 25.2% year-over-year to $23.65 billion for the fiscal 2022 first quarter ended March 31, 2022. The company’s adjusted EBITDA grew 30.3% year-over-year to $1.64 billion, while its adjusted net earnings came in at $1.08 billion, representing a 38.2% year-over-year increase. Also, its adjusted earnings per share came in at $1.90, up 36.7% year-over-year.
FMC’s net sales increased 13% year-over-year to $1.35 billion for the fiscal 2022 first quarter ended March 31, 2022. Its adjusted EBITDA grew 15.6% year-over-year to $354.80 million. Its adjusted after-tax earnings from continuing operations attributable to FMC stockholders increased 19.4% from the year-ago value to $238.70 million. Also, its adjusted after-tax earnings from continuing operations per share, attributable to FMC stockholders, came in at $1.88, up 22.9% year-over-year.
Past and Expected Financial Performance
ADM’s revenue and EBITDA have grown at CAGRs of 12% and 15%, respectively, over the past three years. Analysts expect ADM’s revenue and EPS to increase 9.6% and 24.7%, respectively, in the current quarter (ending June 2022). The company’s revenue and EPS for the next quarter (ending September 2022) are expected to rise 10.7% and 28.7%, respectively. Furthermore, its EPS is expected to grow at a 7.4% rate per annum over the next five years.
FMC’s revenue and EBITDA have grown at CAGRs of 6% and 7.4%, respectively, over the past three years. Analysts expect FMC’s revenue and EPS to increase by 6.5% and 4.2% in the current quarter (ending June 2022). The company’s revenue and EPS for the next quarter (ending September 2022) are expected to rise 7.2% and 13.4%, respectively. Furthermore, its EPS is expected to grow at a 9.6% rate per annum over the next five years.
Profitability
ADM’s trailing-12-month revenue is 17.31 times what FMC generates. However, FMC is relatively more profitable, with an EBITDA and net income margin of 26.38% and 14.64% compared to ADM’s 4.68% and 3.42%, respectively.
Furthermore, FMC’s ROE, ROA, and ROTC of 27.40%, 7.04%, and 10.86% are higher than ADM’s 13.82%, 3.45%, and 5.62%, respectively.
Valuation
In terms of forward EV/Sales, FMC is currently trading at 3.27x, 410.9% higher than ADM’s 0.64x. Moreover, FMC’s forward EV/EBITDA of 12.54x is 17.5% higher than ADM’s 10.67x.
So, ADM is the more affordable stock.
POWR Ratings
ADM has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. In contrast, FMC has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ADM has a grade of B for Growth. The company’s year-over-year EBITDA growth of 27.95% is 410.3% higher than the industry average of 5.48%, in sync with the Growth grade. In contrast, FMC has a Growth grade of C, consistent with its 14.30% year-over-year EBITDA growth, 56.98% lower than the industry average of 33.25%.
ADM has a B grade for Value, consistent with its 0.64x forward EV/Sales, which is 63.5% lower than the 1.74x industry average. However, FMC has a C grade for Value, which is in sync with its 3.27x forward EV/Sales, which is 124.3% higher than the 1.46x industry average.
Of the 35 stocks in the Agriculture industry, ADM is ranked #7. However, FMC is ranked #11 out of 35 stocks in the same industry.
Beyond what I’ve stated above, we have also rated the stocks for Sentiment, Quality, Stability, and Momentum. Click here to view all the ADM ratings. Also, get all the FMC ratings here.
The Winner
The high demand and rising food prices bode well for both ADM and FMC. However, given the discounted valuation and bright growth prospects, ADM could be a better buy here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Agriculture industry here.
ADM shares were trading at $82.42 per share on Wednesday afternoon, down $0.25 (-0.30%). Year-to-date, ADM has gained 23.15%, versus a -19.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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