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Bull of the Day: Archer Daniels Midland (ADM)

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Archer Daniels Midland (ADM - Free Report) stock has been on a tear since a Q4 earnings beat in February and the good times look to continue as we head into the Q1 earnings report next week.  Expected to earn $0.70/share last quarter, ADM surprised the markets, posting $0.82/share – a 17% beat.

In the Q4 report, CEO Juan Luciano commented, “For 2017 as a whole, we grew earnings per share, improved on returns on invested capital and generated positive EVA. Looking ahead, we expect improving results through 2018 as our strategy advances.”

Food Processing Giant

The Illinois-based agricultural giant was founded in 1902 and is a leading provider of food ingredients, serving 170 countries around the world.  They are one of the world’s largest agricultural processors and food ingredient providers, with 31,000 employees, 500 crop procurement locations and 270 ingredient manufacturing facilities.

Archer Daniels Midland operates in four main market segments: Agricultural Services, Oilseeds Processing , Corn Processing and Flavors and Special Ingredients. Showing a growth rate of 9% recently (versus an industry average of 4.2%) they continually redesign their core businesses to reflect evolving consumer tastes.  They aggressively manage expenses with the current initiative expected to provide $550M in run rate cost savings over the next five years.

They also often make strategic acquisitions world-wide to penetrate previously unserved markets.

Stable Food Stocks

Recently, we discussed the bright prospects for four wholesale/retail food companies in a growing economic environment (read the article here), Archer Daniels Midland is one step up the chain, supplying the raw materials for the finished foods everyone eats every day.

With 5 analyst upgrades for 2018 in the past 60 days versus zero downgrades, Archer Daniels Midland earns a Zacks Rank #1 (Strong Buy).

Because of the enormous scale of its operation and large and consistent global demand for its food products, Archer Daniels Midland tends to grow earnings at a steady, if unspectacular, rate.  While blowout quarters can be exciting, true long-term investors appreciate businesses like ADM that grow revenues and earnings quarter after quarter, year after year.

ADM also rewards investors with a 3% dividend.

Inflation Resistant

Archer Daniels Midland is also positioned well in an inflationary environment.  Higher prices for commodities mean higher revenues for the company’s products. Their clean balance sheet means they’ll be less affected by rising interest rates than most other firms.  They currently have a debt to equity ratio of 36%, far less than the industry average of 56%. 

In a growing and increasingly hungry world, Archer Daniels Midland belongs in the portfolio of any investor looking for solid, steady growth and an attractive dividend.

 

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