Barron’s: Corteva Is Nice But Go For FMC Instead

The upcoming spinoff of Corteva Agrisciences on June 1st is the final step of DowDupont’s (DWDP) breakup. You may have heard us talk about it once or twice or…it’s not important. As a reminder though, Corteva will trade under the ticker ‘CTVA’ and DWDP shareholders should receive 1 share of CTVA stock for every 3 DWDP shares owned.

Last month we highlighted a piece in Barron’s pointing out that Wall Street analysts prefer the new Dow (DOW) to its parent DowDuPont. So how does the magazine feel about Corteva? It’s complicated. The entire ag industry is impacted by the farm belts’ ongoing struggles. Profits are down, the weather has been poor and overall pricing has been weak. However, these are all cyclical factors and eventually the weather will improve and the market will turn. Buying at weak points in the cycle is a good strategy.

Corteva is the largest company selling crop inputs in the world with over $14b in sales spread between seeds and crop protection products. It’s initial ‘When Issued’ trading placed a valuation of ~$26b or 10x estimated ’20 EBITDA which appears cheap compared to other specialty chemical peers. Additionally, many believe Corteva to be ‘the best of the three DowDuPont assets.’ All of those may be true, but Barron’s thinks there is a more attractive and safer play in the industry: the smaller and pure play (at least post Livent spinoff) FMC Corporation (FMC).

Why? First, FMC doesn’t sell any glyphosate which has been the subject of numerous painful lawsuits. Although Corteva doesn’t sell the product either, it does offer a generic version which could create future exposure. Additionally, FMC is more geographically diverse. The struggling North America only accounts for 25% of sales whereas growing South American markets are also 25% of sales. Furthermore, FMC has a robust growth pipeline that is forecasted to grow much more quickly than the overall industry. Interestingly, part of that growth is due to assets acquired from DuPont as part of its bid to gain regulatory approval for its merger with Dow.

The piece concludes with some thoughts on valuation and notes that UBS analyst John Roberts thinks Corteva is worth about $39 per share. Nice upside there. Based on industry peer valuations, Barron’s thinks FMC could trade up to $100 per share though and other analysts have price targets around that area as well. A lot of upside there as well, especially compared to Corteva. In the end, if the industry fundamentals turn around, all boats are likely to be lifted.

Disclosure: Author holds no position in any stock mentioned.