While it has been an unfavorable year for growth stocks, food processing major Archer-Daniels-Midland Company (ADM) has gained 39.5% in price year-to-date and 45.4% over the past year to close the last trading session at $94.27.
Despite the uncertain macroeconomic environment, ADM’s EPS and revenue beat analyst estimates in the third quarter. Its EPS was 31.5% higher than analyst estimates, and its revenue beat the consensus estimate by 11.1%. The company’s impressive third-quarter performance can be attributed to robust demand for grain, oilseeds, and tight supplies.
ADM’s adjusted operating profit from its largest segment, Ag Services and Oilseeds, increased 74% year-over-year to $1.08 billion in the last quarter. Its Carbohydrate Solutions segment’s adjusted operating profit rose 45.1% year-over-year to $309 million.
ADM’s Chairman and CEO Juan Luciano said, “Global demand remains robust, and our adjusted EPS of $1.86 is a reflection of our team’s expertise in managing dynamic market conditions, as well as the unique benefits of our integrated global value chain and our product portfolio.”
Despite thinner ethanol margins and U.S. export disruptions due to the low water on the Mississippi river, the company has updated its earnings outlook for fiscal 2022. It now expects its EPS to exceed $7, up from its previous expectation of $6.50. Luciano said, “From what we can see here in a very uncertain world is we have very good momentum going into 2023.”
ADM’s revenue grew at a CAGR of 15.4% over the past three years. Its EBIT grew at a CAGR of 40% over the past three years. In addition, its EPS grew at a CAGR of 51.1% in the same time frame.
The company paid a quarterly dividend of $0.40 on December 7, 2022. Its annual dividend of $1.60 yields 1.70% on the current share price. It has a four-year average yield of 2.76%.
Its dividend payouts have increased at a 4.6% CAGR over the past three years and a 4.6% CAGR over the past five years. The company has grown its dividend payments for 29 consecutive years.
Here’s what could influence ADM’s performance in the upcoming months:
Robust Financials
ADM’s revenues increased 21.4% year-over-year to $24.68 billion for the third quarter ended September 30, 2022. Its gross profit increased 36.6% year-over-year to $1.81 billion. The company’s adjusted net earnings rose 91.2% year-over-year to $1.05 billion. Also, its adjusted EPS came in at $1.86, representing an increase of 91.8% year-over-year.
Favorable Analyst Estimates
Analysts expect ADM’s EPS and revenue for fiscal 2022 to increase 45.2% and 18.6% year-over-year to $7.54 and $101.09 billion, respectively. In addition, its EPS for the quarter ending December 31, 2022, is expected to increase 9.5% year-over-year to $1.64. Moreover, its revenue for the current quarter is expected to increase 9.1% year-over-year to $25.20 billion.
Discounted Valuation
In terms of forward non-GAAP P/E, ADM's 12.51x is 34.2% lower than the 19.02x industry average. Its forward P/S of 0.51x is 53.1% lower than the 1.09x industry average. Also, the stock's 9.21x trailing-12-month EV/EBITDA is 20.1% lower than the 11.54x industry average.
Mixed Profitability
In terms of the trailing-12-month EBITDA margin, ADM’s 5.35% is 53.9% lower than the 11.59% industry average. Its 1.31% trailing-12-month Capex/Sales is 59.1% lower than the 3.21% industry average.
On the other hand, its 7.04% trailing-12-month Return on Total Assets is 88.5% higher than the industry average of 3.73%. In addition, its 1.78% trailing-12-month asset turnover ratio is 116.5% higher than the industry average of 0.82% industry average.
POWR Ratings Show Promise
ADM has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ADM has an A grade for Growth, in sync with its robust financials and strong historical growth.
It has a B grade for Sentiment, consistent with favorable analyst estimates. Its mixed profitability justifies its C grade for Quality.
ADM is ranked #3 out of 28 stocks in the Agriculture industry. Click here to access ADM’s value, Momentum, and stability ratings.
Bottom Line
ADM is trading higher than its 50-day and 200-day moving averages of $93.07 and $87.06, respectively, indicating an uptrend. As demand remains robust for oil seeds and the supply crunch of food grains is expected to boost the prices, ADM’s profitability is expected to rise. Moreover, ADM’s margins are expected to expand, with food prices remaining inflated.
Given its robust financials, solid growth in dividend payments, favorable analyst estimates, and discounted valuation, it could be wise to buy the stock now.
How Does Archer-Daniels-Midland Company (ADM) Stack up Against Its Peers?
ADM has an overall POWR Rating of A, equating to a Strong Buy. Check out these other stocks within the Agriculture industry with an A (Strong Buy) rating: ICL Group Ltd (ICL) and Golden Agri-Resources Ltd (GARPY).
ADM shares fell $0.07 (-0.07%) in premarket trading Thursday. Year-to-date, ADM has gained 42.02%, versus a -18.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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