The supply chain disruptions amid rebounding demand as the global economy recovers from the negative effects of the COVID-19 pandemic have led to increased commodity prices, which is contributing to inflation. The annual U.S. inflation rate came in at 5.4% in September, rising from 5.3% in the preceding month. In line with this rise, food prices jumped 4.6% year-over-year in September. Meat, poultry, fish, and egg prices have increased more than 15% from pre-pandemic levels.
According to the UN Food and Agricultural Organization’s (FAO) monthly Food Price Index, global food prices in September have inflated 33% from the past year and 3% since July, reaching its highest levels since 2011. This has created solid growth opportunities for the agricultural industry. The global agriculture market is expected to grow at a 7% CAGR to $13.13 trillion by 2025.
Given this backdrop, we think agricultural stocks of Archer-Daniels-Midland Company (ADM), Corteva, Inc. (CTVA), AGCO Corporation (AGCO), and Intrepid Potash, Inc. (IPI) will gain substantially. Thus, these stocks could be solid bets now.
Archer-Daniels-Midland Company (ADM)
Chicago’s ADM is an agricultural company that procures, transports, stores, and processes agricultural commodities in the United States and globally. The company operates through the Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition segments.
On October 19, Solarea Bio, a biotech company, announced its technology licensing agreement with ADM. This agreement should enable ADM to leverage Solera’s technology and expertise to expand its capabilities and improve its offerings.
Also in October, ADM formed a joint venture with enzymes and probiotics producer Qingdao Vland Biotech Group Co., Ltd. to meet the growing demand for probiotics in China. The joint venture demonstrates the expansion of ADM’s international operations and should also enhance the company’s human and animal nutrition portfolio.
In September, ADM agreed to acquire a 75% stake in pet treat and supplement product companies PetDine, Pedigree Ovens, The Pound Bakery, and NutraDine, collectively called the P4 Companies. The acquisition is in line with ADM’s strategy of targeted investments in high-growth potential companies.
In its second fiscal quarter, ended June 30, ADM’s revenues increased 40.8% year-over-year to $22.93 billion. Its adjusted segment operating profit rose 44.3% from the prior-year quarter to $1.16 billion. Its adjusted net earnings and adjusted EPS improved 58.7% and 56.5%, respectively, from the same period last year to $754 million and $1.33.
A $4.80 consensus EPS estimate for the current year (fiscal 2021) indicates a 33.7% year-over-year increase. Likewise, the $79.21 billion consensus revenue estimate for the current year reflects a 23.1% improvement from the prior year. Furthermore, ADM has an impressive surprise earnings history; it has topped the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 27.5% in price over the past year and 28.6% year-to-date to close yesterday’s trading session at $64.84.
ADM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Corteva, Inc. (CTVA)
CTVA is a Wilmington, Del.-based agricultural business that operates through the Seed and Crop Protection segments. The Seed segment produces advanced germplasm and technologies for resistance to weather conditions, insects, and diseases. The Crop Protection segment supplies products that protect against weeds, insects, other pests, and diseases to increase crop health.
On September 8, CTVA announced a multi-year agreement with biotechnology company Gaïago for the commercialization of bio fungicides worldwide that can protect grapevines, potatoes, vegetables, and stone and pome fruits against pathogens. The agreement should enhance CTVA’s biological portfolio with access to Gaïago’s expertise.
In August, CTVA and Elemental Enzymes, a life sciences company, announced the extension of their multi-year global agreement to include a new bio fungicide for a broad range of row crops. It provides CTVA the exclusive license to Elemental Enzymes’ patented peptide technology. This agreement should support CTVA’s growth in the sustainable agriculture space.
CTVA’s net sales increased 8.4% year-over-year to $5.63 billion in its fiscal second quarter ended June 30. Non-GAAP Operating EBITDA improved 18.2% from the same period last year to $1.46 billion. Its non-GAAP operating earnings climbed 10.5% from the prior-year quarter to $1.04 billion, while its non-GAAP operating EPS stood at $1.40, up 11.1% year-over-year.
Analysts expect its EPS to increase 300% year-over-year to $0.16 in the current quarter (ending December 2021). Likewise, the Street’s $3.48 billion revenue estimate for the current quarter reflects an 8.6% rise from the prior-year quarter. In addition, CTVA has beaten consensus EPS estimates in each of the trailing four quarters.
CTVA’s stock has gained 33.4% in price over the past year to close yesterday’s trading session at $44.13. It has gained 14% year-to-date.
It’s no surprise that CTVA has an overall B rating, which translates to Buy in our POWR Ratings system. The stock has a B grade for Value and Quality. It is ranked #9 in the Agriculture industry.
To see the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment, click here.
AGCO Corporation (AGCO)
AGCO is a worldwide supplier and distributor of agricultural equipment and related replacement parts. The Duluth, Ga., company produces agricultural solutions such as high horsepower tractors, grain storage bins, and seed processing systems. The company operates under brand names Challenger, Fendt, GSI, Massey Ferguson, and Valtra.
On September 29, AGCO priced 0.800% unsecured, euro-denominated notes, due 2028. The notes were issued by its Netherlands subsidiary AGCO International Holdings, B.V. The proceeds are intended to be used to refinance senior term loans and for general corporate purposes.
Also in September, the company acquired precision livestock farming company Farm Robotics and Automation S.L., also called Faromatics. Regarding this acquisition, Eric Hestia, AGCO’s Chairman, President, and Chief Executive Officer, said, “We’re excited to create smart technology solutions for livestock producers, strengthen our existing capabilities, and accelerate innovation that helps our customers increase profitability while improving animal welfare.”
For its second fiscal quarter, ended June 30, AGCO’s net sales were up 43.5% year-over-year to $2.88 billion, while its gross profit rose 60% from the prior-year quarter to $692.40 million. Its adjusted net income improved 162.5% from the same period last year to $218.90 million. And its adjusted net income per share increased 159.5% year-over-year to $2.88.
The Street’s $2.90 EPS estimate for the current quarter (ending December 2021) indicates an 88.3% improvement from the prior-year quarter. Likewise, the Street’s $3.25 billion revenue estimate reflects a 19.6% year-over-year increase. AGCO has beaten the Street’s EPS estimates in each of the trailing four quarters.
The stock has gained 61.7% in price over the past year and 27.2% year-to-date to close yesterday’s trading session at $131.12.
AGCO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
Intrepid Potash, Inc. (IPI)
IPI is a global seller of potash and langbeinite products and operates through the segments of Potash, Trio, and Oilfield Solutions. The company operates three mines in Wendover and Moab, Utah, and Carlsbad, N.M., for producing potash and salt. In addition, the Denver, Colo., company operates an underground mine in Carlsbad for extracting langbeinite, an all-natural fertilizer.
On August 9, IPI increased its potash price by $80 and Trio® price by $50 to $55 depending on the product grade. Regarding this price increase, Bob Corneas, IPI’s Executive Chairman and CEO, said, “This price increase aligns our posted pricing with the spot potash price levels we are currently seeing in the Cornbelt, and we expect this announcement will give our customers the confidence to place orders for fourth-quarter delivery.”
In its fiscal second quarter, ended June 30, IPI’s sales increased 46.2% year-over-year to $67.89 million. Its adjusted net income and adjusted net income per share came in at $7.38 million and $0.55, respectively, registering a substantial increase over their negative year-ago value. Its adjusted EBITDA rose 2,937.3% from the same period last year to $16.86 million.
A $1.11 consensus EPS estimate for the current quarter (ending December 2021) indicates a 2,320% year-over-year increase. Likewise, the $56.29 million consensus revenue estimate for the current quarter reflects a 16.2% improvement from the prior-year quarter. In addition, IPI has beaten the consensus EPS estimates in three out of the trailing four quarters.
IPI’s stock has gained 336.8% in price over the past year to close yesterday’s trading session at $46.34. It has gained 91.9% year-to-date.
IPI has an overall rating of B, which translates to Buy in our POWR Ratings system. The stock has a Growth, Value, Momentum, and Quality grade of B. It is ranked #3 in the Agriculture industry.
In addition to the POWR Rating grades we’ve stated above, one can see IPI ratings for Stability and Sentiment here.
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ADM shares were trading at $64.87 per share on Thursday afternoon, up $0.03 (+0.05%). Year-to-date, ADM has gained 31.07%, versus a 22.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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