Shares of food-processing giant Archer-Daniels-Midland Company (ADM) have lost 12.8% over the past month to close yesterday’s trading session at $59.90, primarily due to a decrease in hedge fund sentiment lately. However, the company reported solid financial results in the first quarter driven by improved margins on the distribution of fuel ethanol and strong sales across various market segments, especially beverages.
The stock has gained nearly 24% over the past nine months, and 14.3% over the past six months. Earlier this year, ADM announced that it is moving onto the next phase of its strategic transformation, sharpening its focus on two key pillars — Productivity and Innovation — to enhance its capabilities to deliver outstanding execution, serve customer needs, and power growth and profitability. It also aims to eliminate deforestation from all of its supply chains by 2030. So, the stock looks well-positioned to generate steady returns in the upcoming months.
Here’s what I think could influence ADM’s performance in the near term:
ADM and the University of Illinois announced the successful completion of the Illinois Basin – Decatur Project on May 19, which is a carbon capture and storage project designed to evaluate and test the technology at commercial scale. The project successfully demonstrated that carbon capture and storage can be undertaken safely and effectively. On May 10, the company announced its plan to build North Dakota’s first-ever dedicated soybean crushing plant and refinery. ADM celebrated the opening of its new cutting-edge, plant-based innovation lab in Singapore in April 2021, which is expected to develop next-level, on-trend and nutritious products to meet growing food and beverage demand in the Asia-Pacific region.
For the first quarter that ended March 31, 2021, ADM’s revenues increased 26.2% year-over-year to $18.89 billion. Its revenue from the Ag Services and Oilseeds segment increased 35.5% year-over-year to $15 billion while revenue from the Nutrition segment increased 6.3% year-over-year to $1.56 billion. The company’s gross profit for the quarter came in at $1.55 million, up 62.8% year-over-year. ADM’s net income increased 76.2% year-over-year to $689 million. Its adjusted EPS in the first quarter came in at $1.39, up 117.2% year-over-year.
Impressive Revenue and EPS Growth Estimates
Analysts expect ADM’s revenue to increase 9.8% for the about-to-be-reported quarter that ended on June 30, 2021, and 11.5% in fiscal 2021. The company’s EPS is expected to increase 16.5% for the quarter that ended June 30, 2021 and 25.9% in fiscal 2021. Its EPS is expected to grow at a rate of 7.5% per annum over the next five years.
Consensus Rating and Price Target Indicate Solid Upside
ADM has an average broker rating of 1.36. Of the 14 analysts that have rated the stock, 7 rated it Strong Buy and 4 rated it Buy. Wall Street analysts expect the stock to hit $70.08 in the near term, which indicates a potential upside of 17%.
POWR Ratings Reflect Rosy Prospects
ADM has an overall grade of A which equates to a Strong Buy rating in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors with each factor weighted to an optimal degree.
Our proprietary ratings system also evaluates each stock based on eight different categories. ADM has a B grade for Growth, consistent with analysts’ expectations that its revenue and EPS will increase.
The stock has a B grade for Sentiment, which is in keeping with the favorable analyst sentiment. ADM has a B grade for Stability as well, in sync with its beta of 0.90.
ADM also has a B grade for Value. This is justified given its forward non-GAAP P/E of 13.21x, which is 36.6% lower than the industry average of 20.85x. Its forward EV/S of 0.63x is 70.3% lower than the industry average of 2.12x.
In addition to the grades I’ve just highlighted, we’ve also graded ADM for Momentum and Quality. Get all the ADM ratings here.
ADM is ranked #2 out of 30 stocks in the Agriculture industry.
If you’re looking for other top-rated stocks in the same industry, with an overall rating of Strong Buy or Buy, you can access them here.
Being one of the top players in the farm products industry, ADM is expected to continue gaining as COVID-19 pandemic-related restrictions continue to ease. With a footprint across North and South America, Europe, Africa and Asia Pacific, the company is favorably positioned to take advantage of industry tailwinds and generate significant returns in the upcoming months. So, it’s wise to bet on the stock now.
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ADM shares were trading at $59.40 per share on Thursday afternoon, down $0.50 (-0.83%). Year-to-date, ADM has gained 19.31%, versus a 16.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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