The Andersons No Longer a Secret

The Andersons, Inc. (ANDE - Analyst Report) reported second quarter 2008 EPS of $2.48, above our estimate of $2.36 and up 77.1% year-over-year, primarily due to the contribution from the Grain & Ethanol and the Plant Nutrient Groups. Revenue was up a strong 73.6% year-over-year.

Over the long-term, the company plans to capitalize on the ethanol boom by selling ethanol producers its general management, marketing and risk management services. We expect the Plant Nutrient group to post strong growth going forward.

Nonetheless, the Retail Group is facing tough competition from large-scale competitors and in the Rail Group, utilization rate of the fleet and high maintenance costs in the lease business remain a concern.

At the current price of $41.74, ANDE stock trades at a P/E multiple of 8.3x our 2008 EPS estimate of $5.04. This is at a discount to the industry median multiple. Even though the company operates in five different businesses grain operations, railroad car, superstore retailing, agricultural nutrients and inputs and turf and ornamental plant fertilizers, we believe its Grain & Ethanol unit to be the company s primary growth driver.

This is due to our belief that this group will comprise 60% of total profits by the year 2010. Also, we expect the Plant Nutrient group to post strong growth going forward. However, 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 8.5x our 2008 earnings estimate of $5.04 per share, we derive a target price of $43.00 and maintain a Hold rating on ANDE shares.

Read the full analyst report on ANDE