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Archer Daniels (ADM) to Offload CRS Business to Validus

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Archer-Daniels-Midland Company (ADM - Free Report) has inked a deal with Validus Holdings, Ltd. to sell its Crop Risk Services (“CRS”) insurance operations. The cash deal is valued at $127.5 million. The deal, expected to close in the first half of fiscal 2017, awaits regulatory approvals and financial adjustments. Under the terms of the deal, both companies also signed a marketing services agreement to collectively offer a wide range of insurance and farmer marketing products to CRS consumers.

The sale comes as a part of Archer Daniels’ strategy of evaluating its businesses from time to time in order to ensure that its portfolio of assets aid in enhancing long-term returns. The sale of CRS to Validus has dual benefits for Archer Daniels from the marketing services agreement that will help these companies in serving its CRS customers. Secondly, the sale of the business will allow Archer Daniels to redeploy capital in sync with its balanced-capital allocation plan.

Archer Daniels’ CRS operation, which was acquired in 2010, provides farmers with crop insurance and other high-quality services. Also, the CRS serves as a platform through which the company’s grain operations offer various services to its farmer partners.

Further, the addition of CRS is expected to benefit Validus as its services will complement the latter’s existing agriculture book. Further, this acquisition will help the company expand its presence in the U.S. primary specialty lines market.

Found in Dec 2005, Validus together with its subsidiary provides insurance, reinsurance and investment services across the world. This leading insurance company has more than 800 employees and has offices in all major parts of the world. Moreover, this Zacks Rank #1 (Strong Buy) company’s shares have advanced 14.1% in the past six months, outperforming the Zacks categorized Insurance-Brokers industry’s gain of 5.6%.



We also note that Archer Daniels’ shares have increased 24.7% in the past one year, notably outperforming the Zacks categorized Consumer Staples sector’s gain of 2.1%.

The growth is mainly driven by the strategic initiatives undertaken by this Zacks Rank #3 (Hold) company to manage its business portfolio. These initiatives are expected to help the company realize value and invest the same in the best possible resources to enhance returns. Further, the company’s constant focus on cost savings, along with enhancing its processing capabilities and global footprint are also boding well.

We believe this deal will prove a win-win for both the companies enabling Archer Daniels to maintain its disciplined capital allocation strategy. On the contrary, Validus is also expected to gain from CRS’s commitment, which offers superior services to the agents and farmers through leading technology abilities.

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Calavo Growers has delivered a positive earnings surprise in all of the trailing four quarters, with an average of 11.8%. Also, it has a long-term earnings growth rate of 7%.

Ollie's Bargain Outlet Holdings, with a long-term earnings growth rate of 18.9% has gained 37.2% in the past one year.

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