Archer-Daniels-Midland Company (ADM) surpassed EPS estimates by 17% in its 2022 fourth quarter. Moreover, ADM has gained 10.5% over the past year to close the last trading session at $82.85.

In addition, the company raised its quarterly dividend by 12.5% to $0.45 per share, representing its 50th consecutive year of dividend increases.

Its dividend payouts have increased at a 4.6% CAGR over the past five years. Its current dividend yield is 2.17%, while its four-year average yield is 2.72%.

Furthermore, the overwhelming demand for agricultural produce is expected to boost ADM’s performance. U.S. agricultural exports in FY2022 hit a new record of $24.70 billion, up 14% year-over-year. Moreover, the global agriculture equipment market is projected to grow at a CAGR of 6.5% from 2022 to 2030.

Here is what could shape ADM’s performance in the near term:

Solid Financials

ADM’s revenues from Ag services and oilseeds came in at $21.03 billion for the fourth quarter that ended December 31, 2022, up 16.3% year-over-year. Its nutrition segment revenue came in at $1.84 billion, representing a 7.3% year-over-year increase. Also, its total revenues increased 13.6% year-over-year to $26.23 billion.

In addition, its adjusted net earnings came in at $1.07 billion, up 25.8% year-over-year, while its adjusted EPS came in at $1.93, up 28.7% year-over-year.

Attractive Valuations

ADM’s forward EV/Sales of 0.53x is 70.4% lower than the industry average of 1.79x. Its forward EV/EBITDA of 9.04x is 22.5% lower than the industry average of 11.68x. Also, its forward Price/Sales of 0.45x is 62.7% lower than the industry average of 1.20x, while its forward Price/Cash Flow of 9.92x is 31.8% lower than the 14.54x industry average.

Robust Profitability

Its trailing-12-month net income margin of 4.26% is 3.5% higher than the industry average of 4.12%. Moreover, its trailing-12-month ROCE, ROTC, and ROTA of 18.56%, 7.76%, and 11.72% compare with the industry averages of 10.43%, 6.17%, and 3.56%, respectively.

POWR Ratings Reflect Promising Outlook

ADM’s overall rating of B equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ADM has a B grade for Growth, in sync with its solid financials in the latest reported quarter.

It has a B grade for Sentiment, consistent with favorable analysts’ expectations. Analysts expect ADM’s revenue to increase 3.1% year-over-year to $24.39 billion for the quarter ending March 2023.

In the 28-stock Agriculture industry, ADM is ranked #5. Click here for the additional POWR Ratings for ADM (Value, Momentum, Stability, and Quality).

View all the top stocks in the Agriculture industry here.

Bottom Line

ADM reported solid financials in its latest reported quarter. Moreover, Wall Street analysts expect the stock to hit $104.40 in the near term, indicating a potential upside of 26%. Given the robust demand for the agriculture industry, and ADM’s robust fundamentals, I think it might be an ideal buy for 2023.

How Does Archer-Daniels-Midland Company (ADM) Stack up Against Its Peers?  

While ADM has an overall POWR Rating of B, one might consider looking at its industry peers, ICL Group Ltd (ICL), Golden Agri-Resources Ltd (GARPY), and Yara International ASA (YARIY), which have an overall A (Strong Buy) rating.

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ADM shares were trading at $83.31 per share on Wednesday morning, up $0.46 (+0.56%). Year-to-date, ADM has declined -10.27%, versus a 6.06% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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