Back to top

Image: Bigstock

Archer Daniels Focuses on Strategic Growth: Should You Add?

Read MoreHide Full Article

Shares of Archer-Daniels-Midland Company (ADM - Free Report) have outperformed both the Zacks categorized Agricultural Operations industry and the broader sector in the past one year. While this Zacks Rank #3 (Hold) stock increased nearly 18%, the industry gained 16.1%. Moreover, the Zacks categorized Consumer Staples sector registered a return of 3.7% over the said time frame. Moreover, it exhibits a VGM Score of ‘A’ with a long-term earnings growth rate of 20.3%, highlighting its growth potential.



Let’s Delve Deep

Archer Daniels has been strategically undertaking steps to manage its business portfolio, which is expected to help in realizing value and investing the same in best possible resources to enhance returns.

Recent actions include enhancing footprint in the Animal Nutrition space, particularly marking its entry into the growing Chinese high value specialty aquafeed market; to sell its Crop Risk Services (“CRS”) insurance operations; buyout of Crosswind Industries Inc.; and enhancing production capacity as well as expansion of the finishing capabilities of its corn wet mills at Adana in Turkey and Razgrad in Bulgaria. We believe these initiatives are likely to solidify the company’s portfolio, improve its knowledge, help focus on consumers and drive returns.

Additionally, Archer Daniels remains focused on strengthening its business through increased cost savings, a key component of its long-term strategy. Going forward, the company targets $550 million in additional run rate cost savings over the next five years, including cost savings of $350 million from operational excellence and process enhancements, and about $200 million in incremental purchasing savings.

Notably, the company exceeded its run-rate savings target of $275 million in 2016, thanks to its strategic efforts. Also, the company remains focused on cost synergy activities by addressing redundancies and removing overlapping corporate SG&A.

Furthermore, Archer Daniels has been continuing its investment activities for business growth. With regard to this, it shifted from domestic projects – where returns are difficult to model – to international projects that can be tracked more easily and will be accretive at a faster pace. Alongside, this leading food processing company has always maintained a disciplined capital allocation strategy, focusing on making investments and shareholder-friendly moves.

Throwing light upon its quarterly performance, the company posted fourth-quarter 2016 adjusted earnings of 75 cents per share that jumped 15.4% year over year, but fell short of the Zacks Consensus Estimate of 80 cents. Further, the top line also increased year over year but missed the Zacks Consensus Estimate.

The company benefited from enhanced operating conditions in the quarter, as against a challenging scenario in the first half of the year. Moreover, results gained from robust Agricultural Services performance in North America, solid Corn Processing business, and continued growth witnessed across the Wild Flavors space.

However, both the company’s Oilseeds and Specialty Ingredients businesses are facing some hindrance. In addition, fluctuating commodity prices, seasonal risk and competition from rivals remain major threats to the company. Besides, Archer Daniels’ financial performance may be adversely affected due to its significant presence in the international market, which exposes it to unfavorable foreign currency translations.

Nevertheless, management remains confident of delivering solid results in 2017, backed by its strategic growth plan, along with improved market conditions and expectations of better contributions from its recent projects and businesses.

Stocks that Warrant a Look

Better-ranked stocks in the broader Consumer Staples sector include Blue Buffalo Pet Products, Inc. (BUFF - Free Report) , Energizer Holdings, Inc. (ENR - Free Report) and Spectrum Brands Holdings, Inc. (SPB - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Blue Buffalo Pet Products has a long-term earnings growth rate of 14%. Also, the stock has posted an average beat of 6.8% in the past four quarters.

Energizer Holdings, with a long-term earnings growth rate of 9.5% has increased 29.6% in the past three months.

Spectrum Brands, with a long-term earnings growth rate of 12% has surged 30.7% in the past one year.

More Stock News: 8 Companies Verge on Apple-Like Run

Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.

A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>

Published in