It has been about 10 months since I last wrote about American Vanguard (NYSE:AVD),
but things haven't really gotten any easier in the company's core crop
protection market. Lower corn acreage, high channel inventories, and
benign insect pressure have severely sapped the company's insecticide
business and the company is having to deal with suboptimal operating
leverage and the cash absorption of excess working capital as it works
through this tough stretch.
I believe that if you adjust for the
"corn bubble", American Vanguard has continued to operate as a
respectable niche crop protection company with mid-single digit revenue
growth and the potential to generate double-digit FCF margins.
"Potential" is a tricky word, though, and often the difference between
value traps and successful investments. Monsanto's (NYSE:MON) aggressive bid for Syngenta (NYSE:SYT)
has brought some excitement back to crop protection, but actual results
show a tough environment and M&A is unlikely to benefit American
Vanguard unless a company not currently active in the U.S. wants to
facilitate a market entry. I don't think American Vanguard is
particularly expensive here, but the year ahead is still going to be a
challenging one for AVD management and investors.
Read the full article here:
American Vanguard Paying For The Recent Glory Days
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