Ethanol Boosts Hold-Rated ANDE

The Andersons, Inc. (ANDE - Analyst Report) reported first quarter EPS of $0.42, below our estimate of $0.53 and down 17.6% y-o-y, due to higher interest expense and combination of a $3.0 million gain realized in the prior-year quarter on the donation of the company's available-for-sale securities, as well as current period losses of $0.4 million on the company's Deferred Compensation Plan assets.

However, revenue was up a strong 75.4% y-o-y, primarily led by the Grain & Ethanol and the Plant Nutrient Groups. Over the long-term, the company plans to capitalize on the ethanol boom, marketing and risk management services. Nonetheless, the Retail Group is facing tough competition and in the Rail Group, utilization rate of the fleet and high maintenance costs in the lease business remain a concern. We recommend investors to Hold shares of ANDE in their portfolio.

On June 26, the company announced an increase in its full-year 2008 earnings per share guidance. The management now expects 2008 diluted EPS in the range of $4.40 to $4.80, up from the prior expectation of $3.65 to $4.00.

At the current price of $39.22, ANDE stock trades at a P/E multiple of 8.3x our 2008 EPS estimate of $4.49. This is at a discount to the industry median multiple and its peer group. Currently we do not expect a significant expansion in P/E multiple due to ongoing weakness in the Retail and Rail groups. Applying a P/E multiple of about 8.4x our 2008 earnings estimate of $4.49 per share, we derive a target price of $37.50.

Read the full analyst report on ANDE

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