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ADM Good Enough To Gobble Up
Ethanol producer and grain processor Archer Daniels Midland (NYSE:ADM) released third quarter results before the opening bell on May 5. And the company missed expectations by a long shot. However, the stock looks appetizing for the long haul.
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The Skinny On The Quarter
In case you missed it, the Illinois-based company turned in earnings of 37 cents per share, excluding items. That was markedly lower than the 49 cents per share analysts has been expecting. Adding fuel to the fire, ADM's sales line also came in below expectations at $14.8 billion. With these numbers, it wouldn't come as a surprise if full-year estimates started to tick down, too.
Falling Into The Abyss
However, not all is doom and gloom. There are several reasons why ADM will remain a force to be reckoned with into the future and why its stock has upside from here.
Points to consider:
• Although the weak economy is taking a toll, the macro outlook ultimately will perk up. And when it does, demand for baking ingredients will increase.
• Oil prices have come down and this may stifle the demand for alternative fuels in the near-term. But at the end of the day, the U.S. is moving more towards a "green movement" than away from it. Long story short, demand for ethanol production will increase over time and that this will play to ADM's favors.
• The company is expected to earn $3.51 per share this year and $2.73 per share in 2010, according to Thomson Financial Networks. Clearly, that's not the ideal direction. But the company trades at about 6.8 times the current year's estimate, which
makes the stock quite attractive. It will be interesting to see how high earnings will climb when economic conditions become more normalized. (Learn more in our Financial Statements Tutorial.)
• The company pays a dividend and the forward yield exceeds 2%. Also, ADM has been consistent with its dividend despite the current challenges. In fact, in a February 5 press release discussing the March 12 dividend payment, ADM offered the following: "This is ADM's 309th consecutive quarterly payment, a record of 77 years of uninterrupted dividends." In short, that is an unbelievable record and the company would not pay out the dividend unless it thought it had the financial wherewithal to do so. (Switching gears for a moment, if dividends are your thing, consider checking out Colgate (NYSE:CL), the company best known for toothpaste. According to a January press release: "The Company has paid uninterrupted dividends on its common stock since 1895." In short, that is a terrific record. For more on Colgate, be sure to read Consumer Staples Stocks Avoid The Dividend Axe.)
Other Companies Worth Mentioning
Oilseed processor Bunge (NYSE:BG) has seen better days, as evidenced by the fact that its stock is off its 52-week high by more than 60%. In addition, the company made headlines a couple weeks back when it lowered its 2009 expectations.
Still, the company is expecting earnings to come in between $4.90 and $5.40 per share, a bargain, considering that the stock can be purchased for approximately $50 per share. The company also trades under book value, which makes it well positioned to benefit over the long-term as demand for food increases.
The media attention surrounding swine flu has caused trouble for meat processor Tyson Foods (NYSE:TSN). However, as fear abates, the demand for pork will perk back up.
According to Thomson Financial Networks, the company is expected to lose money in the current year. However, it is expected to put up 82 cents per share for the fiscal year ending September 2010. If the company is able to meet expectations, the stock could trade into the mid- and high-teens.Finally, insiders purchased the stock in November 2008, probably as incentive to try to get the stock price moving. (To learn more, read Earnings Forecasts: A Primer and Surprising Earnings Results.)
Bottom Line
ADM missed expectations in its latest quarter. Obviously, that's not good news. But the company is a solid long-term investment opportunity with a solid dividend history. (I'm also bullish on Bunge; Tyson could have some upside from current levels, too.)
IN PICTURES: World's Greatest Investors
The Skinny On The Quarter
In case you missed it, the Illinois-based company turned in earnings of 37 cents per share, excluding items. That was markedly lower than the 49 cents per share analysts has been expecting. Adding fuel to the fire, ADM's sales line also came in below expectations at $14.8 billion. With these numbers, it wouldn't come as a surprise if full-year estimates started to tick down, too.
Falling Into The Abyss
However, not all is doom and gloom. There are several reasons why ADM will remain a force to be reckoned with into the future and why its stock has upside from here.
Points to consider:
• Although the weak economy is taking a toll, the macro outlook ultimately will perk up. And when it does, demand for baking ingredients will increase.
• Oil prices have come down and this may stifle the demand for alternative fuels in the near-term. But at the end of the day, the U.S. is moving more towards a "green movement" than away from it. Long story short, demand for ethanol production will increase over time and that this will play to ADM's favors.
makes the stock quite attractive. It will be interesting to see how high earnings will climb when economic conditions become more normalized. (Learn more in our Financial Statements Tutorial.)
• The company pays a dividend and the forward yield exceeds 2%. Also, ADM has been consistent with its dividend despite the current challenges. In fact, in a February 5 press release discussing the March 12 dividend payment, ADM offered the following: "This is ADM's 309th consecutive quarterly payment, a record of 77 years of uninterrupted dividends." In short, that is an unbelievable record and the company would not pay out the dividend unless it thought it had the financial wherewithal to do so. (Switching gears for a moment, if dividends are your thing, consider checking out Colgate (NYSE:CL), the company best known for toothpaste. According to a January press release: "The Company has paid uninterrupted dividends on its common stock since 1895." In short, that is a terrific record. For more on Colgate, be sure to read Consumer Staples Stocks Avoid The Dividend Axe.)
Other Companies Worth Mentioning
Oilseed processor Bunge (NYSE:BG) has seen better days, as evidenced by the fact that its stock is off its 52-week high by more than 60%. In addition, the company made headlines a couple weeks back when it lowered its 2009 expectations.
Still, the company is expecting earnings to come in between $4.90 and $5.40 per share, a bargain, considering that the stock can be purchased for approximately $50 per share. The company also trades under book value, which makes it well positioned to benefit over the long-term as demand for food increases.
The media attention surrounding swine flu has caused trouble for meat processor Tyson Foods (NYSE:TSN). However, as fear abates, the demand for pork will perk back up.
According to Thomson Financial Networks, the company is expected to lose money in the current year. However, it is expected to put up 82 cents per share for the fiscal year ending September 2010. If the company is able to meet expectations, the stock could trade into the mid- and high-teens.Finally, insiders purchased the stock in November 2008, probably as incentive to try to get the stock price moving. (To learn more, read Earnings Forecasts: A Primer and Surprising Earnings Results.)
Bottom Line
ADM missed expectations in its latest quarter. Obviously, that's not good news. But the company is a solid long-term investment opportunity with a solid dividend history. (I'm also bullish on Bunge; Tyson could have some upside from current levels, too.)
by
Glenn Curtis
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.
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